Information and considerations for AIFMs using the host model to manage alternative investment funds.
AIFMs can use the host model to employ staff on secondment from a third party to help manage the AIF.
In this model, seconded staff help the AIFM to carry out regulated tasks, for example, portfolio management of assets of the AIF, or administrative jobs like dealing with customers.
In some cases, the AIFM may be a principal firm, and the person seconded to the AIFM may come from one of its appointed representatives (ARs).
Risks in the AIFM host model
In 2023, we reviewed firms using the host AIFM model to assess how well they understood and complied with their regulatory responsibilities. We focused on situations where secondees from an AR were placed with an AIFM principal firm. This follows previous supervisory work in 2019.
During our 2023 review, we found potential harm from:
- a lack of oversight of seconded staff
- insufficient involvement in investor due diligence
- inadequacies in capital adequacy calculations
We also found misleading claims from third parties that had seconded staff to an AIFM. For example, we found cases of ARs marketing themselves as investment managers, wealth managers and stockbrokers, despite only seconded staff being permitted to carry out these functions on behalf of the AIFM.
Below we set out our findings from the 2023 review and provide guidance for firms operating the AIFM host model.
