AIFMD

Norway has implemented the EU Alternative Investment Fund Managers Directive (AIFMD) into its national legislation through the Norwegian Act on the Management of Alternative Investment Funds (the “AIFM Act”). The AIFM Act applies to managers (AIFMs) of alternative investment funds (AIFs).

By definition, AIFs are collective investment undertakings that are not undertakings for collective investment in transferable securities (UCITS), and which raise capital from a number of investors with a view to investing that capital for the benefit of those investors, in accordance with a defined investment policy.

When it comes to the application of the AIFM Act in Norway, the majority of its provisions apply only to the AIFMs rather than to the AIFs themselves. However, the obligations imposed on AIFMs indirectly extend to the activities of the AIFs they manage.

Internal or external management

The AIF may itself choose to be the AIFM (internally managed) or appoint an external AIFM to be its manager.

Licensing and registration exemption

At the outset, all AIFMs are required to obtain a licence, subjecting them to comprehensive oversight under the AIFM Act by the Financial Supervisory Authority of Norway (FSAN). Exceptions exist for so-called “sub-threshold AIFMs”, which can register with the FSAN and comply mainly with the anti-money laundering regime and certain disclosure obligations.

To qualify as a sub-threshold AIFM, the AIFM cannot manage AIFs with aggregated assets under management equal to or exceeding an amount equivalent in NOK to:

• EUR500 million, when the portfolios comprise unleveraged AIFs with no redemption rights exercisable for investors during a five-year period following the initial investment; or
• EUR100 million, for AIFs other than those mentioned above.

It is worth noting that sub-threshold AIFMs are restricted from marketing their AIFs in the EEA and to retail (non-professional) investors in Norway, meaning that sub-threshold AIFMs may only market AIFs to professional investors in Norway or to investors outside of the EEA, unless they are subject to the European Venture Capital Funds (“EuVECA”). In addition, sub-threshold AIFMs cannot offer their fund management services across other EEA member states (ie, sub-threshold Norwegian AIFMs may at the outset only manage Norwegian funds).

Supervision

The FSAN is responsible for supervising both licensed and registered AIFMs operating in Norway.

Growth and Trends

Despite its modest size on the global stage, Norway’s asset management market has experienced consistent growth, including an uptick in assets under management and the emergence of new asset management firms and funds. Even during the market volatility caused by the pandemic, Norwegian funds saw a net increase in capital inflow.

As of the end of 2022, the number of AIFMs reporting to the FSAN had risen to 244 – an increase of 26 from the previous year – with combined assets under management totalling NOK431 billion, marking a 5% growth. These figures underscore the resilience and growth potential of Norway’s financial market.

Factors such as Norway’s stable political climate, predictable financial market and consistent economic growth make it an increasingly attractive jurisdiction.

There is a trend towards establishing Norwegian fund structures rather than opting for offshore jurisdictions such as Jersey, Guernsey and Luxembourg. This domestic expansion has also spurred the growth of service providers in areas ranging from fund administration and depositary services to compliance and risk management.

According to the Norwegian Venture Capital Association, Norway has seen significant foreign investment in recent years. Despite market volatility and geopolitical uncertainties, Norwegian companies attracted NOK39.9 billion in investments from both domestic and foreign private equity funds in 2022. Foreign fund managers contributed the majority of this capital, highlighting Norway’s appeal as an investment destination.

Given the increasing number of AIFMs and growing assets under management, Norway continues to be a compelling jurisdiction for alternative funds, managers and investors.

In Norway, the AIF landscape is varied, with private equity funds, fund-of-funds, shipping and offshore-related funds, and real estate funds standing out as the predominant alternative fund types. Hedge funds also maintain a notable presence. Although not classified as AIFs, family offices are increasing in Norway and manage substantial assets and frequently diversify into alternative investments, reflecting a global trend.

The regulatory framework governing fund vehicles in Norway primarily falls into two main categories: UCITS and AIFs, each with its own distinct set of regulations and compliance obligations.

UCITS are generally less suited to alternative investment strategies due to regulatory constraints, such as bi-monthly redemption requirements and limitations on investment types. In contrast, AIFs offer greater flexibility, making them the preferred choice for implementing alternative investment strategies.

Domestic AIFs are typically established as a limited partnership (indre selskap) or a private limited company (aksjeselskap).

The Norwegian limited partnership structures share many similarities with the limited partnership funds seen in the largest fund jurisdictions. The Norwegian limited liability company structures share many similarities with the limited liability company funds seen in the largest fund jurisdictions, although without the same flexibility in terms of variable capital.

It is also quite normal for Norwegian investment teams to establish their funds in Ireland or Luxembourg.

It is worth noting that the AIFM Act does not impose any restrictions on the legal structure that a fund may adopt. However, there are specific limitations concerning the types of corporate structures that fund managers themselves can use.

As a party to the European Economic Area (EEA) Agreement, Norway is bound by EU legislation relevant to the single market, including financial regulatory and asset management legislation such as the AIFMD. The principal regulatory framework in Norway is the AIFM Act, which integrates the provisions of the AIFMD.

As a starting point, the AIFM Act does not impose legal obligations on the funds, but regulates the fund managers. Hence, AIFs per se are generally not legally constrained, and there are no particular investment limitations for the funds, unless a regulated fund structure is chosen as further detailed below. In addition, there may be other regulatory restrictions that limit the fund’s investment possibilities in Norway, such as the credit monopoly (as further detailed in 2.6 Loan Origination).

The AIFM’s Regulatory Status and Fund Structure

The regulatory landscape primarily depends on the AIFM’s regulatory status and the selected fund structure.

Sub-threshold managers

Norway has implemented the AIFMD thresholds, allowing for light-touch regulation of managers of smaller funds that are not mutual funds (in simple terms, less than EUR500 million for closed-end funds and less than EUR100 million for open-end funds).

Managers in this category are exempt from FSAN authorisation and are only subject to a simplified registration process. They are also not subject to full compliance with the AIFM Act, unless they have opted in. Notably, these managers cannot market AIFs in other EEA states under the pan-European marketing passport, nor can they market the funds to non-professional investors. However, a sub-threshold manager may apply for authorisation in order to obtain the same rights and obligations as fully licensed managers.

Fully licensed managers

These managers are subject to both the rights and responsibilities under both the AIFMD and the AIFM Act. This includes benefiting from the EU passporting regime, as well as marketing to retail investors pursuant to further authorisation from the FSAN (depending on whether the fund is regulated or unregulated). For unregulated AIFs, both Norwegian and EEA licensed AIFMs must seek additional approval from the FSAN before marketing to retail investors in Norway.

Regulated fund types

Norway identifies six key regulated funds: UCITS, national funds, special funds, EuVECA, EuSEF (European Social Entrepreneurship Funds) and ELTIF (European Long-Term Investment Funds).

• UCITS: Largely mirroring the UCITS Directive, these funds can cater to both professional and retail investors.
• National funds: These are alternative securities funds diverging from standard UCITS guidelines, especially concerning investment and diversification.
• Special funds: These are a national funds subset and have more latitude concerning investment strategies and redemptions, albeit with marketing rules for non-professional investors. Post the implementation of the AIFMD in Norway, these are less prevalent than unregulated AIF structures due to their comparative inflexibility.
• EuVECA, EuSEF and ELTIF: Norway has incorporated the three EU regulations focusing on specific AIF sub-categories – EuSEF, ELTIF and EuVECA. For these regulated funds, at least 70% of their capital should be channelled into designated qualifying assets, in line with each fund’s objective. This stipulation stands in contrast to “unregulated” AIFs, which do not have such binding investment limits.

AIFMs are subject to several disclosure and reporting requirements, initially set out in the AIFMD, which enforced some transparency requirements intended to protect investors through pre-contractual information, an annual report, and reporting obligations to the FSAN.

Fully licensed managers are subject to statutory disclosure requirements from both investors and competent authorities, both with respect to pre-investment disclosures and ongoing disclosures. The AIFM Act imposes certain requirements with respect to ongoing reporting to investors, and requires periodic reporting to the competent authorities.

While there exists a legislative backbone for disclosures, market factors also dictate the nature and extent of these communications. Institutional entities, especially insurers and pension funds, frequently demand more rigorous ESG and financial disclosures, surpassing mere legal prerequisites.

In addition, all managers marketing funds in Norway, irrespective of their licensing status, are subject to the rules implementing the EU Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation, which came into force on 1 January 2023. While these rules do not impose specific investment constraints as such, the industry’s evolving preference for ESG and sustainability-driven products suggests managers will embed ESG more comprehensively in their investment and risk management processes, in addition to the specific reporting requirements under the SFDR.

A trend in newer regulations and guidelines is that sponsors should ensure that essential information remains public, underscoring the priority of transparency. The SFDR is a testament to this evolving dynamic with, for example, requirements for website disclosures, signalling a more transparent future in financial disclosures.

Norwegian alternative fund structures are taxed under the ordinary Norwegian corporate income tax regime.

AIF – Limited Company

AIFs established as limited companies (corporate funds) in Norway are ordinarily subject to 22% tax on net income, but they are largely tax exempt on dividends and gains from qualifying share investments (including shares in companies established in the EU/EEA and some types of investments outside of the EU/EEA, subject to certain limitations). This is due to the Norwegian participation exemption (fritaksmetoden).

Dividend distributions from corporate funds to foreign investors are subject to up to 25% withholding tax, but EU/EEA-based corporate investors are largely exempt, tax treaties may provide relief and it is possible to distribute paid-in capital tax-free before taxable dividends.

AIF – Limited Partnership

AIFs established as limited partnerships in Norway are transparent for Norwegian tax purposes. They therefore trigger Norwegian tax and reporting obligations for the limited partners (investors), which is why they are not the preferred choice of foreign investors. However, the investors (whether they reside in Norway or inside/outside of the EU) will be largely tax exempt on the underlying dividends and gains from qualifying share investment (they benefit from Norwegian participation exemption through the partnership).

There is normally no Norwegian withholding tax on distributions to or from Norwegian limited partnerships, which often makes these types of AIFs more tax effective than limited company structures.

Norwegian legislation has strict rules on which entities may originate loans, and the regulatory regime is often referred to as a credit monopoly.

As a starting point, lending and other forms of financing by extension of credit, as well as the intermediation and facilitation of such activities, are defined as “financing activities” under Norwegian law and can only be carried out by institutions duly licensed in Norway or EEA-based credit or financial institutions that have the benefit of EEA “passporting rights”, unless an exemption applies.

Financing activities cover both the provision of credit in the primary market (loan origination) and the acquisition of loans in the secondary market. On the other hand, investments in bonds (whether on the primary or secondary market) are generally held not to constitute financing activities. Similarly, operational leasing, as opposed to financial leasing, and investments channelled through structured equity also do not generally fall within the ambit of licensable financing activities.

General Exemptions to Financing Activities

In addition, there are certain general exemptions to what constitutes a financing activity.

Exemptions for regulated fund structures

Although there is no general exemption under the AIFM Act for unregulated AIFs, the regulated fund structures, including EuSEF, EuVECA and ELTIF funds, have the benefit of originating loans to portfolio companies. This represents an exemption from the credit monopoly referred to above. The exemption only applies if the funds obliged to maintain the conditions for investments that the regulations impose on the funds.

Other relevant exemptions

There are other general exemptions that funds and entities might avail themselves of, where the most relevant exemption in most cases is: (i) conducting financing activities on an isolated or one-off basis (where financing is not otherwise part of the financier’s business model); and (ii) conducting financing activities for companies within the same group. The latter exemption is, for example, commonly used for private equity funds (or underlying companies in the fund structure) to grant loans to their portfolio companies provided that the relevant fund has controlling influence over the portfolio company. There is also currently a legislative suggestion pending to expand this exemption to smaller ownerships, but the outcome of this is currently uncertain. It is also worth mentioning that an ongoing legislative proposal seeks to extend this exemption, although the final outcome of this also remains to be seen.

Lastly, there is an exemption for reverse solicitation scenarios, often referred to as the “client’s first-approach exemption”, which is not expressly articulated in Norwegian legislation. Instead, it emerges from an interpretation of what constitutes financing activities within Norway’s jurisdiction. In essence, it grants foreign lenders the flexibility to engage another lender for syndicated financing activities, in financing activities that are initiated directly by the borrower, the borrower’s intermediaries or under other specific conditions.

There are no general limitations on a fund’s investment strategy, and the AIFM Act does not set limitations on which assets an alternative investment fund has to invest in to be considered an AIF. However, there are certain other regulatory limitations and considerations that should be taken into account when investing in non-traditional assets.

Norwegian regulations generally provide flexibility in terms of investment strategies for funds. Specifically, the AIFM Act refrains from stipulating any precise asset classes that an alternative investment fund should target to qualify as an AIF. Moreover, asset managers should be aware of the unique challenges associated with the custody of these digital entities, meaning that the current possibilities for direct investments in compliance with depositary requirements are limited.

Digital Assets

There are currently no regulations prohibiting AIFs from investing in digital assets such as cryptocurrency and NFTs. However, given their volatile nature, the FSAN has issued cautionary advice about investing in cryptocurrencies. In addition, managing and safeguarding these digital assets directly can pose practical challenges, in particular in relation to custody solutions.

Loan Portfolios and Litigation Funding

In general, Norwegian investment funds cannot originate consumer credit loans or other types of loans, as further detailed in 2.6 Loan Origination above.

The act of financially backing lawsuits might sometimes be interpreted as a licensable financial activity in Norway, demanding either the requisite licences or specific exemptions. In addition, the Norwegian Supreme Court came to a decision on 5 June 2023 (HR-2023-1034-A) clarifying certain procedural issues with respect to litigation funding and opt-out class actions, which is a typical form of lawsuit for which litigation funding is used internationally. The Supreme Court stated that the funder of an opt-out class action cannot obtain coverage of the yield on its investment by a deduction in the compensation awarded to the class members, making it difficult for a funder to collect the yield agreed with the class representative from the class members. The current procedural framework will therefore probably limit the use of litigation financing in Norway, although such investments are allowed per se.

Cannabis-Related Investments

Although Norway maintains a stringent stance on cannabis consumption and marketing within its territories, this does not outright prevent funds from investing in cannabis production and development enterprises. However, it is imperative that such portfolio companies operate within the legal boundaries of their respective jurisdictions, ensuring that all associated activities remain compliant.

The use of subsidiaries for investment purposes is particularly prevalent among private equity and real estate funds (among others), for several reasons.

From a regulatory perspective, the use of subsidiaries might be significant. For many funds, leverage should ideally be applied at subsidiary levels rather than at the fund level due to mandate restrictions or due to the calculation of assets under management (AUM) for sub-threshold AIFMs.

From a practical perspective, it is often more efficient to structure financing (and pledging/securities) by using subsidiary structures/holding structures. In addition, the use of subsidiaries may provide an additional level of segregation or limitation to liability (depending on the underlying asset). If holding physical assets or assets providing interest income, it may be practical to hold such assets indirectly through subsidiaries (in contrast to the fund having direct ownership).

Subsidiaries also serve the purpose of isolating specific investment risks, thereby safeguarding the broader asset base of the parent company. This structural compartmentalisation establishes various levels of subordination for lenders when using external financing, going beyond mere contractual stipulations and offering a more nuanced approach to risk management.

It is also quite common for funds to establish local holding structures for the purpose of acquiring target companies. That would, for example, enable the manager to take up debt financing in the local structure and offset the interest charges against taxable income in the target (through group contributions, provided the various criteria and limitations for doing so are met). A multi-layered structure could also allow distributions to be made prior to an exit without withholding taxes, by liquidating one or more of the intermediate holding companies enjoying the withholding tax-free status that liquidation proceeds currently have (although this may change in the future and could be challenged under Norwegian anti-tax avoidance rules).

Additionally, the use of subsidiaries is instrumental in implementing investment platforms designed for add-ons, thereby enhancing operational flexibility. This is particularly relevant for private equity funds that aim to acquire multiple companies within the same sector and consolidate and integrate them under a single operational umbrella.

In summary, the use of subsidiaries in Norway is a strategic choice that offers multiple advantages, including risk management, tax efficiency, and the effective implementation of diverse investment strategies. This approach aligns well with the regulatory landscape and is especially common in private equity and real estate funds.

Managers of Norwegian AIFs

The AIFM Act in Norway does not stipulate the necessity of a local fund manager for a local fund. Norway, being a part of the EEA, adheres to the European passport regime established by the AIFMD, which allows AIFMs from EU and EEA member states to operate seamlessly across borders.

In order to act as the AIFM of a Norwegian AIF, a manager must either be a Norwegian-based AIFM authorised by the FSAN or an EU/EEA-based AIFM authorised and regulated by its local regulator, and compliant with the “passporting” notification procedure in line with the AIFMD.

Delegation of Portfolio Management

In addition to the above, Norwegian AIFMs can delegate the portfolio management of AIFs. as long as the delegated investment manager has authorisation from its local regulatory body for portfolio management tasks. In this way:

• portfolio management entities, either Norwegian-based or in other EEA states with the relevant authorisation, can manage or co-manage Norwegian AIFs; and
• entities authorised in line with the EU MiFID can provide third-party portfolio management services.

Entities based in third countries may be authorised by their local regulator for “portfolio management purposes”, equivalent to the EU MiFID II investment service, given that a co-operation agreement exists between FSAN and the relevant local regulator.

A number of Norwegian AIFs are established as private limited companies, which are governed by the Norwegian private limited companies act. There are few strict substance requirements, but for a private limited company, for example, part of the board should comprise EU/EEA, Swiss and/or UK directors, and the company should further be registered at a Norwegian address.

Depositary

In accordance with the AIFMD, the AIFM Act sets out that the depositary of an AIF must be either:

• an EEA-licensed credit institution;
• an EEA-licensed investment firm, with the prudent authorisation and adequate financial reserves as further specified; or
• for AIFs established in another EEA member state, institutions that are eligible to be a depositary for UCITS in the AIF’s home state.

For AIFs established within the EEA, the depositary must be located in the AIF’s home state. For AIFs established outside the EEA, the depositary can be in either the AIF’s or AIFM’s home state.

Administrators

An AIFM has the provision to undertake administrative functions, falling within the remit of its AIF management operations. A broad spectrum of administrative responsibilities may, however, be delegated to entities, which do not require a licence or local representation in Norway for these functions.

Other Service Providers

The AIFM legislation does not delineate explicit criteria for miscellaneous service providers. Nonetheless, regulatory parameters might influence their operations.

For instance, to extend investment services to the AIFM or AIF, entities need to obtain a licence per the stipulations of the laws implementing MiFID II in Norway.

Under the Norwegian AML Act, the AIFMs themselves are subject to requirements related to Customer Due Diligence (CDD) measures, and the investors in the funds under management by the AIFM are considered customers of the AIFM for the purpose of the AML Act. The money-laundering reporting officer should also be an integral part of the managerial team.

Service providers affiliated with the fund might also come under the purview of AML regulations. This could arise from their involvement in traditionally regulated services like accounting or depositary functions, or their explicit regulation by the AML Act itself. A case in point is trust or company service providers (TCSPs), which encompass entities delivering services related to the incorporation, governance and day-to-day operations of legal structures.

Going forward, several European initiatives will have an impact on Norwegian fund regulations. Notably, amendments to the ELTIF regulations are on the horizon, and in the longer term, revisions to the AIFMD and the UCITS Directive – referred to as AIFMD II – are anticipated. The last-mentioned amendments, particularly in relation to the proposed increased flexibility around loan originations, without imposing stringent investment restrictions, could significantly influence Norway’s investment landscape, considering the prevailing credit monopoly as described in 2.6 Loan Origination.

Moreover, other initiatives seeking to promote supervisory convergence across Europe, especially in the realms of sustainable finance and anti-money laundering measures, are set to leave their imprint on Norway’s regulatory framework. However, it is pertinent to note that Norway, not being an EU member, must first await incorporation of EEA-relevant legislation into the EEA Agreement and subsequently enact it into national law. This process often leads to considerable delays in the adoption of EU regulations in Norway, and given the current backlog, predicting the timeline for implementation is challenging.

As further described in 4.4 Rules Concerning Marketing of Alternative Funds, the AIFM Act has been amended to include the pre-marketing regime under the Cross-Border Distribution of Funds (CBDF) Directive 2019/1160, but at the time of writing, this has not yet come into force as the Directive has not yet been fully incorporated into the EEA Agreement.

The majority of promoters or sponsors of alternative funds in Norway typically originate from within Norway itself. However, there are no legal requirements with respect to the origin of sponsors.

However, it is also a widespread practice to manage funds on a cross-border basis, extending to other jurisdictions within the EEA. In situations where sponsors have funds located outside Norway, the Norwegian entity may either assume the role of the AIFM, directly managing the fund, or it may offer investment services and marketing under MiFID rules, with a distinct local entity serving as the AIFM, as further described under 2.9 Requirement for Local Investment Managers.

Furthermore, the industry does include several sponsors whose funds are located outside both Norway and the EEA, such as in the Cayman Islands. In such scenarios, a common structure is to have the manager, typically the general partner, established in a jurisdiction outside the EEA, with the Norwegian entity providing advisory services to the general partner.

In Norway, sponsors frequently opt for legal structures that act as managers of the alternative investment funds. The organisation of the fund structure does, however, dictate whether the fund sponsor aligns with the fund manager, with the latter bearing the regulatory responsibilities under rules implementing the AIFMD.

Typically, Norwegian funds are overseen by an external manager, who is either registered or authorised. It is relatively uncommon to encounter internally managed funds. For above-threshold AIFMs, it is a requirement for authorisation that a Norwegian AIFM is structured as a private limited liability company or a public limited liability company that has its registered business office and head office in Norway.

Overview

In Norway, the AIFM Act implements the AIFMD, regulating the management and marketing of alternative investment funds, as further detailed in 2.3 Regulatory Regime for Funds. Upon entry into force of the pre-marketing rules under the amended AIFMD, pre-marketing will also be a regulated activity. A significant portion of fund managers in Norway manage assets that remain beneath the stipulated threshold values necessitating authorisation, which are EUR100 million or EUR500 million, depending on specific fund terms. Several managers do however opt in for authorisation, due to their cross-border activities or marketing, or to enable them to market units in funds to non-professional investors.

Fiduciary Duty

Managers have a legal regulated fiduciary duty to the fund, the investors, and the market. The scope of fiduciary duties that a fund manager owes to the fund investors is different for authorised AIFMs and for registered AIFMs.

Authorised AIFMs are subject to overarching business conduct rules, as further specified in the AIFM Act and related regulations. Even though sub-threshold AIFMs are not subject to these rules, they must comply with contractual obligations towards fund investors as well as general marketing and contract law.

The conduct of business rules is referred to as a “legal standard”. What constitutes “acting in an orderly manner” and “fair treatment of investors” will certainly evolve over time together with society.

Managers who are guilty of intentional or negligent gross or repeated violations of the conduct of business rules are exposed to penalties such as fines and prison time. This proves the significance of the conduct of business rules, and shows the kind of action supervisors and authorities can take if the rules are not adhered to.

Norwegian AIFMs are generally subject to the ordinary corporate income tax regime, but they are taxed at the increased financial activities tax rate of 25% (increased from 22%) and they are further subject to a five percentage points increase in the social security contributions relating to their employees. Their management services are generally VAT exempt.

There are no relevant sector-specific exemptions or carve-outs, but the foreign fund structures involving Norwegian fund managers or advisers are generally structured in a way that should limit the risk for a Norwegian permanent establishment for the fund.

Depending on the circumstances of the particular fund and manager, carried interest is often treated as share income or gain for Norwegian tax purposes, and not, for example, as salary income. However, some structure the carried interest as the business income of, for example, the manager, which subjects it to a tax rate of 22–25%. The latter would typically be the case if the team received carried interest entitlement despite not making any meaningful investment, on their part, into the structure.

AIFMs have the flexibility to delegate certain functions and operations to third-party entities. When such delegation encompasses functions traditionally under the purview of the AIFM, as delineated in AIFMD Annex I, it is obligatory for authorised AIFMs to notify the FSAN.

While delegation arrangements can increase efficiencies and ensure access to external expertise, particularly given the global nature of the investment fund industry, its extensive use may also create operational and supervisory risks, particularly in relation to empty shells and letterbox companies. In addition, the extent and manner of outsourcing must not compromise prudence or obstruct the FSAN’s ability to conduct adequate supervision over the third party executing the functions/operations.

The Norwegian fund management regime allows for either a Norwegian-based AIFM licensed by the FSAN or a fund manager with an AIFMD passport. In addition, the fund manager can outsource portfolio management to an investment manager abroad, pursuant to the legislation implementing MiFID II and the national regime on investment services from non-EU countries, as further described under 2.9 Requirement for Local Investment Managers. As such, there are no local substance requirements.

However, any AIFM must maintain sufficient financial, technical and human resources in line with the nature of its business, investment services and the complexity of its activities. As such, for Norwegian-based AIFMs, general experience from the administrative practice of the regulator is that in order to ensure the continuity of its resources, the AIFM must have:

• at least two conducting officers, one of them representing the portfolio management function and one of them the risk management function; and
• more generally, at least three people present on close to a full-time basis, including at least two full-time managers.

In Norway, AIFMs are subject to specific notification requirements in the context of mergers, sales, restructurings, or similar transactions. Below is a non-exhaustive list of the most relevant requirements for alternative funds.

Acquisition of Control

If an AIF acquires or disposes of voting shares in a non-listed company so that its ownership stake reaches, exceeds or falls below specific thresholds – namely 10%, 20%, 30%, 50% or 75% – the AIFM must promptly notify the FSAN. The notification should be submitted as soon as possible, but no later than ten business days after the event.

In cases where an AIF gains control, individually or jointly, over a non-listed company (except for entities solely investing in real estate and small or medium-sized enterprises) or a listed company, additional notification and disclosure obligations arise. The AIFM is then required to notify not only the FSAN but also the target company and its shareholders.

AIFs are further subject to asset-stripping regulations under the AIFMD and the corresponding Norwegian AIFM Act. These provisions impose limitations on certain financial activities by EU-incorporated portfolio companies for the first 24 months following the acquisition of control by an AIF. Specifically, the limitations apply to distributions, capital reductions, share redemptions, and the acquisition of own shares.

Merger Control

In accordance with Norwegian merger regulations, companies must notify the Norwegian Competition Authority (NCA) of concentrations where the combined Norwegian annual turnover of the undertakings concerned exceeds NOK1 billion and at least two of the undertakings concerned have an annual Norwegian turnover exceeding NOK100 million.

Transactions triggering a notification cannot be closed until they have received clearance from the NCA.

The NCA may also, within three months of a final agreement/acquisition of control, review transactions falling below the turnover thresholds, if the NCA has reason to assume that competition will be affected. It is also possible to voluntarily notify the NCA of a transaction, although this is rarely done.

It is not necessary to notify the NCA if the parties meet the thresholds for a mandatory notification to the European Commission under the EU Merger Regulation, or if they need to notify the European Free Trade Association (EFTA) Surveillance Authority.

It is also necessary to consider whether other European regulations, such as the Foreign Subsidies Regulation, might apply to the transaction.

Acquisition of substantive holdings or control in a target company may also trigger other notification or authorisation requirements under Norwegian or foreign legislation.

Most of the upcoming legislation described in 2.12 Anticipated Changes will also have an impact on fund managers.

The Norwegian asset management market continues to demonstrate robust growth year after year, as substantiated by the FSAN’s 2022 annual report. Last year, the total assets under management reached NOK431 billion, marking a 5% uptick from the previous year.

AIFs Managed by Fully Licensed AIFMs

In Norway, AIFs managed by licensed AIFMs primarily attract professional investors. With the exception of fund-of-funds, all categories of AIFs have a clientele comprising over 80% professional investors.

The FSAN’s 2022 report highlights that a high proportion of professional investors have remained relatively stable since 2019, underscoring the market’s resilience and the strong appetite for alternative investments among this group.

Interestingly, the fund-of-funds category stands out for having the highest proportion of non-professional investors, both among fully licensed and sub-threshold AIFMs. The high proportion of non-professional investors in such funds could potentially result from fund-of-funds implementing certain feeder fund structures that allow non-professionals to invest “second hand” in, for example, PE funds through the feeder fund. Various Norwegian investment firms, such as Formue and Cubera, offer non-professionals such investment services.

AIFs Managed by Sub-threshold AIFMs

AIFs managed by sub-threshold AIFMs may not be marketed to non-professional investors. Nonetheless, some funds do include non-professional investors who have either joined through reverse solicitation or who were long-standing investors prior to theimplementation of the AIFM Act.

According to the FSAN’s 2022 report, as of the close of 2022, 76 out of 287 funds managed by sub-threshold AIFMs had 9% of their invested capital sourced from non-professional investors. This figure represents a one percentage point decline from 2021, a trend that is consistent across all fund categories.

In Summary

The Norwegian asset management landscape is characterised by the strong presence of professional investors, particularly in funds managed by fully licensed AIFMs. This suggests a healthy appetite for alternative investments within this demographic. On the other hand, the gradual decline in non-professional investor participation, especially in funds managed by sub-threshold AIFMs, indicates that attracting this segment remains a challenge. Nonetheless, the overall stability and growth of the market point to Norway as a compelling jurisdiction for alternative funds.

In the Norwegian regulatory framework for alternative investment funds, there are no explicit restrictions regarding the use of side letters. They are generally permitted, yet the permissible scope can vary depending on the individual fund and its legal structure. Still, according to the AIFM Act, managers are mandated to ensure the fair treatment of all investors. This implies that any preferential treatment granted to specific investors should not lead to material disadvantages for others.

It has become common practice, and is often expected by investors, for funds to incorporate a most-favoured-nations clause relating to side letters. In recent times, managing side letters has evolved into a significant compliance task for managers. This can be attributed to the growing complexity and the introduction of more discretionary elements in side letters, such as requirements for ESG reporting. The future landscape is uncertain, as it remains to be seen whether the pressures of cost-saving and escalating compliance responsibilities will drive a trend towards standardisation and potentially limit the current flexibility in negotiating side-letter agreements.

To whom an alternative fund can be marketed depends on whether the AIFM is licensed, as well as the chosen fund structure, as further described in 2.3 Regulatory Regime for Funds. Sub-threshold managers and non-EEA managers may only market funds to “professional investors” (as defined in MiFID II). These types of investors include regulated financial institutions, pension plans, central government entities or large corporate investors (“per se professional clients”).

In addition to the general marketing requirements under the AIFM laws, managers and other promoters should ensure that other regulatory requirements, such as prospectus rules, general marketing law and rules regulating investment services, are complied with.

Fund managers are allowed to market AIFs to local investors and it is common for AIFs established in Norway to have local investors. Regulation differs between marketing to professional investors and non-professional investors.

EEA AIFMs

An EEA AIFM intending to market a Norwegian AIF or EEA AIF to professional investors in Norway can proceed upon the FSAN receiving a passport notification from the AIFM’s home state competent authority. The distribution activities in Norway may commence from the date of this notification.

Marketing to non-professional investors in Norway is also permissible for an EEA AIFM, but this requires separate approval from the FSAN. In this case, the EEA AIFM must submit documentation to the FSAN proving that the AIF can be marketed to non-professional investors in its home state and that it will comply with the applicable Norwegian requirements, such as the preparation of a key investor information document and conducting a suitability test. AIFMs marketing AIFs to non-professional investors in Norway must be members of an independent, external complaints board.

Third-Country Funds and AIFMs

Norway maintains a private placement regime for EEA AIFMs marketing non-EEA funds and non-EEA AIFMs marketing funds according to AIFMD Articles 36 and 42, respectively. Such AIFMs must submit an application to the FSAN detailing their intention to market an AIF outside the passporting regime of the AIFMD. Marketing of the AIF is permitted upon the FSAN’s approval.

Pre-marketing

The Cross-Border Distribution of Funds (CBDF) Directive was implemented by amendments to the AIFM Act and the UCITS Act on 22 June 2022. Accordingly, once the implementing law comes into effect (which is expected to take place some time in Q4 2023), the harmonised rules for marketing funds from other EEA states and the possibility for EU/EEA AIFMs to undertake pre-marketing will apply in Norway. The amended AIFM Act does not allow non-EEA managers and funds to conduct pre-marketing in Norway.

Reverse Solicitation

Under Norwegian law, there is limited access to conclude fund subscriptions/placements based on reverse solicitation from investors. This means subscriptions made exclusively at the initiative of the professional investor without any prior solicitation from the AIFM. In these cases, the marketing approval requirements for the AIF do not apply. Reverse enquiry is traditionally interpreted “narrowly” by the FSAN, implying that the subscription should generally be initiated solely by the investor without any marketing of the AIF to the investor by the AIFM or any party acting on its behalf.

Once the laws implementing the CBDF Directive come into force, an AIFM will not be able to rely on reverse solicitation for a period of 18 months following the initiation of pre-marketing of the AIF.

Fees

At the time of writing, there are no fees concerning cross-border activities into Norway by non-Norwegian AIFMs and UCITS managers. However, a new fee regime will be implemented in 2024, with the FSAN setting the specific fees annually. The applicable fees have not yet been determined, but the regulation caps one-off fees at NOK30,000 (approximately EUR2,700), with a minimum of NOK5,000. The annual fee is capped at NOK10,000 (approximately EUR890).

The use of compensation and placement agents varies depending on the specific situation and the AIF’s specific needs. In general, it is common for fund managers to seek help to raise capital, but there are no regulatory requirements on the AIFM’s part with respect to using them, other than ensuring that the agents have the necessary authorisation.

The provision of assistance in relation to placements of financial instruments, such as units in funds, is generally regarded as an investment service, subject to the licensing requirements set forth in the laws implementing MiFID II. Furthermore, advice provided to a company with respect to its capital structure or business strategy (eg, pre-M&A advice) may be regarded as an ancillary service, provided that the advice is general in nature and that no individual recommendation to transact in a certain financial instrument is made.

Investors are generally subject to the ordinary income tax regime.

Foreign Investors

Foreign shareholders in Norwegian limited companies are normally only subject to withholding tax on dividends if they invest as shareholders in a Norwegian limited company, and there are even significant exemptions from that withholding tax for investors in the EU/EEA, and relief for investors benefiting from a double tax treaty. Furthermore, the sale of shares or liquidation proceeds are not subject to Norwegian withholding tax.

Foreign limited partners in a Norwegian limited partnership are in principle taxable and must file Norwegian tax returns, but they are often largely exempt from tax pursuant to the Norwegian participation exemption (assuming the AIF invests in qualifying shares) and they may be able to get further relief under an applicable double tax treaty.

Norwegian Investors

Norwegian investors are subject to the ordinary income tax regime on their investments in AIFs. Ordinary corporate investors are often largely tax exempt on such investments under the Norwegian participation exemption, and any taxable income (eg, interest income or income/gain on non-qualifying investments) is subject to 22–25% net tax. The tax approach depends on whether the Norwegian investor invests as a shareholder or limited partner, but the overall, ultimate tax burden is often largely the same (with certain important exceptions, eg, in secondary transactions in AIFs that hold investments outside the Norwegian participation exemption). The taxation of private individuals is not considered further here.

Alternative funds established as Norwegian limited companies typically qualify for benefits under Norway’s broad network of double tax treaties. Norwegian limited partnerships are not themselves able to qualify for the treaties, but their underlying partners may.

The FATCA and CRS compliance regime in Norway broadly follows the international standards, and Norway entered into a FATCA Model 1 Intergovernmental Agreement (IGA) with the US tax authorities (IRS) in 2013.

As a starting point, both registered and authorised AIFMs are equally subject to the Norwegian AML Act (transposing the EU AML directives into Norwegian law). The funds themselves, regardless of structure and type (regulated/unregulated), are not subject to the AML Act. The FSAN has stated in its administrative practice that the AIFM must treat the investors in a fund under management as their customers for the purpose of the AML Act and must therefore ensure that the necessary due diligence measures are carried out at manager level.

However, the AML Act only applies to entities established/registered in Norway, including branches of foreign undertakings, meaning that non-Norwegian managers marketing funds in Norway on a cross-border basis will not be subject to the Norwegian AML Act.

The EU General Data Protection Regulation (GDPR) was incorporated into the EEA Agreement and thereafter incorporated into Norwegian law by means of the Personal Data Act, which has been in effect since 20 July 2018. Generally, managers and funds should therefore ensure compliance with the GDPR when dealing with investors in Norway.

The Norwegian tax authorities are considering subjecting liquidation proceeds to withholding taxes to the same extent that ongoing dividend distributions are subjected to withholding taxes. This could, for example, have an impact on the ability to distribute gain tax-free to US investors and other investors that are not exempt from Norwegian withholding taxes in connection with the liquidation of a Norwegian holding structure.       

With the introduction of pre-marketing rules under the CBDF Directive, pre-marketing will become a regulated activity. As further described in 4.4 Rules Concerning Marketing of Alternative Funds, the AIFM Act has been amended to include the pre-marketing regime under the CBDF Directive but, at the time of writing, this has not yet come into force.