FIDUCIARY DUTIES OF ALTERNATIVE INVESTMENT FUND MANAGERS UNDER AIFMD
The AIFMD regulates the duties of fund managers who invest clients’ money on behalf of them. It can be said that the fiduciary duties that is regulated under AIFMD is similar to fiduciary relations which are existed for decades.
LOYALTY
Article 12 of the AIFMD refers one of the fiduciary duty.According to this article, the AIFMD should act honestly, with due skill, care and diligence and fairly in conducting their activities that should be ended with best interest for the beneficiaries.This basically refers to us a loyalty which is seen in common law as a precedent. In Bristol and West Building Society case the importance of the loyalty has been highlighted with acting a good faith and avoiding a conflict.In addition to this, as a different meaning of the loyalty that is given by the case, again according to article 12 sub section (d),fund managers must act in the best interest of the AIFs so it can be seen here that the different shape of loyalty.
Furthermore, there could be a dilemma regarding acting honestly. How should acting honestly be interpreted by the court.The scope of the general framework of the law and the AIFMD,in order to ensure transparency, the fund manager must act honestly in objective way.Otherwise, the article of the 1260 would be meaningless, if the definition of the acting honestly had been changed case by case.
CONFLICT OF INTEREST
The conflict of interest has been set out in Article 13 in AIFMD.According to Directive, there are two elements that the fund managers have to follow.Firstly, the appropriate procedure should be followed by the manager in order to reduce any conflict between clients and companies while the fund manager is gaining benefit over the clients with using of the financial tools that is known by themselves.Under normal circumstances of the working environment, it’s absolutely could not be excepted that a fund manager works with just one clients.When the fund manager considers client’s interest, he must take into account any conflicts with other clients.There could be given some example regarding this situation. If the investment is related to manager’s family or acquisition, there should be clear code for ethic rules in order to avoid possible conflict in the future. Therefore, they could do their own business as well, for sure, but if the possible conflict of interest is expected, the fund manager should identify to possible expectations of the conflict and disclose rules to their beneficiaries.
RISK MANAGEMENT
The risk management is also crucial fiduciary duty of AIFMs and takes place in Article 15.The ability of the risk management is one of the essential feature that the fund manager should have. A risk management department should be located functionally and hierarchically separated from directors in company law area. The risk management team should calculate the possible risk, observe the investment of the fund managers, and warn to clients if it needs to be. There should be prohibited to reach investigation of the units, because, they visit companies regularly,and may be have close relations with managers, therefore it can be said that the bribery is possible. In order to avoid this circumstances, the regulatory system is vital and take place in Directive as it mentioned above.
LIQUIDITY MANAGEMENT
As a general rule of the trade, the success of the investment of the fund cannot be guaranteed by the fund managers. Therefore, liquidity management is set out in Article 16.According to article, the investment should be monitored weekly or monthly and the monitoring is fund manager’s responsibility to avoid possible financial crisis.In order to handle a stress, fund manager could test themselves in test which is carried out by Bank of England in England.
