AIFMD

Norway 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 alternative investment fund (AIF) managers (AIFMs).

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.

The majority of the AIFM Act’s provisions apply only to the AIFMs. However, the obligations imposed on AIFMs indirectly extend to the activities of the AIFs they manage.

Internal or external management

The AIFM Act permits AIFs to be managed either internally, through a corporate body (ie, the board of directors for limited companies), or externally, where the AIF appoints an external AIFM to be its manager.

Licensing and registration exemption

All AIFMs are required to obtain a licence, subjecting them to comprehensive supervision under the AIFM Act by the Financial Supervisory Authority of Norway (FSAN). Exceptions exist for “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 in NOK equivalent 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.

These sub-threshold AIFMs do not enjoy passporting rights in the European Economic Area (EEA) and cannot market 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 Norway subject to local law, unless they are authorised under the European Venture Capital Funds (“EuVECA”) regime. In addition, sub-threshold Norwegian AIFMs may generally 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 in recent years, including an uptick in assets under management and the emergence of new asset management firms and funds.

As of the end of 2023, assets under management (AUM) for Norwegian AIFMs reached NOK495 billion, representing a 15% increase over the previous year.  However, the number of AIFMs reporting to the FSAN decreased to 231, down by 13 management firms. This decline may, among other factors (such as the global market climate), be attributed to the ongoing trend of consolidation and concentration of AUM among fewer and larger alternative fund managers, a pattern that has also been increasingly observed in Norway over the past few years, in line with global developments.

There is a trend towards establishing more Norwegian fund structures (ie, onshoring), but the use of offshore  jurisdictions such as Jersey, Guernsey and Luxembourg is also quite common. Figures show an increase of 19 Norwegian AIFs from 2022 to 2023. 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.

In 2022, Norwegian companies received NOK39.9 billion in investments, mainly from foreign private equity funds, according to the Norwegian Venture Capital Association. It appears that the trend of acquisition by foreign funds will continue, highlighting Norway’s consistent appeal as an investment destination.

Given the steadily increasing number of AIFs and growing number of AUM, Norway continues to be a compelling jurisdiction for alternative funds, managers and investors.

ESG

ESG considerations continued to play an important part in several aspects of alternative asset management in 2024, for example, in fund formation, investment processes and especially in the marketing of funds.

The FSAN requires specific documents to approve the marketing of AIFs to investors in accordance with the AIFM Act. Part of this marketing is to provide information in relation to the EU Sustainable Finance Disclosure Regulation (SFDR). For example, SFDR Article 7 requires AIFMs to provide investors with information about whether the fund will take Principal Adverse Impacts (PAIs) on sustainability factors into consideration. If not, the AIFM must give a clear and reasoned explanation as to why it does not take PAIs into consideration.

On a fund level, reporting on PAI mandates the collection of data from portfolio investments. Collecting data is challenging and this is why many AIFMs do not consider PAIs on sustainability factors.

In fact, it often happens that AIFMs use the lack of data as the (sole) reason for not taking PAIs into consideration. Due to relevant data becoming more available, however, the regulatory authorities appear to have tightened up on the possibility to use “missing data” considerations as the only reason for not assessing PAI indicators.

There has been a substantial increase in the focus on ESG considerations when investing, with a growing number of investors only investing in so-called Article 9 funds.

Beneficial Owners

In recent years, the importance of adequate access to information regarding beneficial owners has been emphasised, both internationally and in Norway. The Register on Beneficial Owners Act partially came into effect in 2021, with the remaining parts coming into effect on 1 October 2024.

From this date, businesses and legal persons can register information about beneficial owners, but the obligation to register does not take effect until 31 July 2025. Norwegian AIFs and AIFMs structured as private limited companies and limited partnerships (eg, the general partner) will be in scope.

The Norwegian AIF landscape is varied, with private equity and venture capital 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. Family offices are also on the rise in Norway, managing substantial assets and frequently diversifying 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. By contrast, AIFs offer greater flexibility, making them the preferred choice for implementing alternative investment strategies.

Domestic AIFs are typically established as limited partnerships (indre selskap) or private limited companies (aksjeselskap). Norwegian limited company structures share many similarities with the limited company funds seen in the largest fund jurisdictions, although without the same flexibility in terms of variable capital.

It is also common for Norwegian investment teams to establish their funds in Luxembourg, Guernsey or Jersey, or Ireland.

It should be mentioned that the AIFM Act does not apply any restrictions on the legal structure that a fund may adopt. AIFMs may, however, only be organised as a limited company.

As a party to the 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.

Where a regulated type of fund product is not chosen, the AIFM Act does not regulate AIFs on a product level. Accordingly, there are no general product restrictions for AIFs. However, there may be other regulatory restrictions that limit a fund’s investment strategies in Norway, such as the credit monopoly (as further detailed in 2.5 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, closed-end funds with less than EUR500 million and open-end funds with less than EUR100 million).

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 to the authorisation regime. Notably, these managers cannot market AIFs in other EEA states under the pan-European marketing passport, nor can they market to retail investors in Norway. They may, however, elect to opt in to the authorisation regime, thereby accessing the same rights and obligations as authorised managers.

Fully licensed managers

These managers are subject to the rights and responsibilities under both the AIFMD and the AIFM Act. These include benefiting from the EU passporting regime, as well as marketing to retail investors subject to further specific authorisation from the FSAN. 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 seven key regulated funds: UCITS, national funds, special funds, EuVECA, EuSEF (European Social Entrepreneurship Funds), ELTIF (European Long-Term Investment Funds) and Money Market Funds (MMFs).

• UCITS: Largely mirroring the UCITS Directive, these funds can cater to both professional and retail investors.
• National funds: Alternative securities funds diverging from standard UCITS guidelines, especially concerning investment and diversification.
• Special funds: A national funds subset, having 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 governing these AIF sub-categories. 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.
• MMFs: Norway has incorporated the EU regulation governing Money Market Funds established, managed or marketed in the EEA, including such funds taking the form of UCITS or AIFs.

AIFMs are subject to several disclosure and reporting requirements, which introduce transparency requirements, such as requirements regarding pre-contractual information, annual reports and reporting obligations.

Fully licensed managers are subject to statutory disclosure requirements to both investors and competent authorities, including 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.

SFDR and Taxonomy Regulation

In addition, all managers marketing funds in Norway, irrespective of their licensing status, are subject to the rules implementing the 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.

Securities Financing Transactions Regulation (SFTR)

Additionally, the Securities Financing Transactions Regulation (SFTR) came into force in Norway on 1 August 2024. The SFTR requires AIFMs to report fund securities financing transactions to a transaction register starting 1 November 2025.

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. However, 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, and tax treaties may provide relief. Additionally, 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, investors will be largely tax exempt on the underlying dividends and gains from qualifying share investment (they benefit from the Norwegian participation exemption through the partnership).

There is typically no Norwegian withholding tax on distributions to or from Norwegian limited partnerships, which often makes this type of AIF 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

Additionally, 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 EuSEFs, EuVECAs and ELTIFs, 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 are obliged to maintain the conditions for investments that the regulations impose on the funds.

Future exemptions

The AIFMD II introduces a regulatory framework for credit funds, which will enable further AIFs to offer financing activities in Norway, which is a significant development in terms of market access to direct lending funds. AIFMD II came into force on 15 April 2024, with member states required to transpose the directive by 16 April 2026. There is still no certainty that Norway will meet this transposition deadline.

Additionally, the rules in ELTIF 2.0 will address the shortcomings of ELTIF 1.0 and thus contribute to an even stronger exception to the rules on loan origination. It remains uncertain when ELTIF 2.0 will come into force in Norway.

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 allows foreign lenders to involve additional lenders in syndicated financing activities initiated by the borrower, their intermediaries, or under other specific conditions.

There are no general limitations on an AIF’s investment strategy, and the AIFM Act generally does not restrict the assets in which an AIF may invest.

However, there are certain other regulatory limitations and considerations that should be taken into account when investing in non-traditional assets. While Norwegian regulations generally provide flexibility in terms of investment strategies for AIFs, such assets still pose unique challenges associated with the custody of such assets. As a result, the current possibilities for direct investments in compliance with depositary requirements may be 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.

Internationally, investing in digital assets has increased in popularity and interest. The EU recently adopted the Markets in Crypto-Assets Regulation (MiCA) and the Ministry of Finance currently has a proposal to implement rules corresponding to MiCA into Norwegian law on public consultation, which ended on 1 June 2024.

Loan Portfolios and Litigation Funding

Generally, Norwegian investment funds cannot originate consumer credit loans or other types of loans, as further detailed in 2.5 Loan Origination above.

The act of financially backing lawsuits may occasionally be interpreted as a licensable financial activity in Norway, requiring either the requisite licences or specific exemptions. On 5 June 2023, the Norwegian Supreme Court provided clarity on procedural issues regarding litigation funding and opt-out class actions in the decision HR-2023-1034-A. Opt-out class actions are commonly used internationally for litigation funding. The court ruled that funders of such actions cannot derive a return on their investment through deductions from the compensation awarded to class members. This decision makes it challenging for funders to collect agreed-upon returns from the class members via the class representative. Consequently, although litigation financing is permitted in itself, the existing procedural framework in Norway might restrict its application.

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 prevalent in 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 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. Additionally, 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. This 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 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 particularly prevalent in private equity and real estate funds.

Managers of Norwegian AIFs

The AIFM Act in Norway does not stipulate the necessity of having a local AIFM for a local fund. Norway, being a part of the EEA, adheres to the European passport regime established by the AIFMD, which allows authorised AIFMs from EU/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 registered with or authorised by the FSAN, or an EU/EEA-based AIFM authorised and regulated by its local regulator, having exercised its right to manage AIFs on a cross-border basis in Norway 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 delegate is appropriately authorised to perform portfolio management services. In this way:

• appropriately authorised portfolio managers, based in Norway or an EEA state, may act as investment manager to Norwegian AIFs; and
• appropriately authorised third-country entities may also act as delegates, provided that a co-operation agreement exists between the FSAN and the relevant local regulator.

A number of Norwegian AIFs are established as private limited companies, governed by the Norwegian private limited companies act. Although there are few strict substance requirements, it is stipulated that for a private limited company, the board should comprise directors from the EU/EEA, Switzerland and/or the UK. Additionally, the company must be registered at a Norwegian address.

Depositary

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

• an EEA-licensed credit institution; or
• an EEA-licensed investment firm, with 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 EEA-based AIFs, 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 the AIFM’s home state.

Administrators

An AIFM may undertake administrative functions, falling within the remit of its AIF management operations. However, a wide range of these administrative responsibilities may be delegated to entities that do not need a licence or local representation in Norway to carry out 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 the Markets in Financial Instruments Directive II (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 already apply in the EU (the implementation date in the EEA states remains uncertain for now). In the longer term, changes to the AIFMD and the UCITS Directive were enacted earlier in 2024 – referred to as AIFMD II – and will apply from April 2026. The last-mentioned amendments, especially concerning the proposed increased flexibility on loan originations, without imposing stringent investment restrictions, could significantly influence Norway’s investment landscape, considering the prevailing credit monopoly as described in 2.5 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 causes significant delays in adopting 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. The CBDF rules became effective on 1 October 2024.

In February 2024, the Ministry of Finance proposed incorporating the PRIIPs Regulation (EU Regulation No 1286/2014) into Norwegian law, mandating key information disclosure to retail investors for certain investment products. The PRIIPs Act also became effective on 1 October 2024.

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.

Nevertheless, it is also a widespread practice to manage funds on a cross-border basis, extending to other jurisdictions within the EEA. In circumstances 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 2.8 Local/Presence Requirements for Funds.

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.

Norwegian funds are normally managed by an external AIFM incorporated as a Norwegian private limited company, which is either registered or authorised. Some funds are internally managed funds (by their board of directors), but this is less common for larger funds or managers that sponsor a series of funds. For above-threshold AIFMs, the AIFM in Norway is structured as a private limited company or a public limited 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 AIFs, as further detailed in 2.2 Regulatory Regime for Funds. Since the pre-marketing rules under the amended AIFMD came into force in Norway on 1 October 2024, pre-marketing has become a regulated activity. A significant portion of AIFMs in Norway manage assets that remain beneath the stipulated threshold values necessitating authorisation, which are EUR100 million or EUR500 million, depending on the 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. AIFMs are subject to several disclosure and reporting requirements, as set out and further described under 2.2 Regulatory Regime for Funds. Whether the disclosures have to be made publicly available depends on the circumstances. Certain disclosures, including pre-contractual disclosures required under the SFDR, must be made publicly available.

Fiduciary Duty

Managers have a legal regulated fiduciary duty to the fund, the investors and the market. The scope of fiduciary duties that an AIFM owes to 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 application of business conduct 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.

Managers who are guilty (by way of intent or negligence) of severe or repeated violations of the way they apply business conduct rules are exposed to penalties such as fines and imprisonment. This proves the significance of business conduct rules, and illustrates the actions that supervisors and authorities can take in cases of non-compliance.

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% and are additionally subject to a 5% increase in social security contributions payable on the salaries of their employees. This higher tax rate compensates for the fact that their management services are generally VAT exempt.

There are no relevant sector-specific exemptions or carve-outs, but the foreign fund structures involving Norwegian AIFMs 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, which is largely tax-exempt under the Norwegian participation exemption. In some structures and cases, the carried interest qualifies as the business income of the manager, which is subject to a tax rate of 22–25%.

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 mandatory 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, their extensive use may also create operational and supervisory risks, predominantly in relation to empty shells and letterbox companies. Additionally, 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.

Norwegian AIFs may be managed by either a Norwegian-based AIFM (licensed by or registered with) the FSAN or an EEA AIFM exercising its AIFMD passporting rights. Additionally, the AIFM can outsource portfolio management to an investment manager abroad, as further described under 2.8 Local/Presence Requirments for Funds. As such, Norwegian AIFs may be managed without a local presence.

However, Norwegian AIFMs must maintain sufficient financial, technical and human resources in line with the nature of their business, investment services and the complexity of their activities. Administrative practice typically requires that 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
• 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.

AIFMs are 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

According to 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. Companies may 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 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.

Companies should also 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.

Norway currently lacks regulations specifically for the use of AI in AIFs or financial institutions. Legislators are awaiting the new EU AI Act, expected to apply in Norway around 2025 to 2026, simultaneously with the EU. The AI Act, covering various sectors including finance, will primarily target high-risk AI systems, which are uncommon for AIFMs. Nevertheless, all enterprises using AI must ensure AI literacy for their staff, as detailed in Article 4 of the AI Act, to facilitate informed and appropriate AI usage while recognising potential opportunities and risks.

Most of the upcoming legislation described in 2.10 Anticipated Changes will also affect AIFMs.

The Norwegian asset management market continues to demonstrate growth each year, as substantiated by the FSAN’s 2023 annual report. Last year, the total assets under management reached NOK495 billion, marking an approximately 15% uptick from the previous year.

AIFs Managed by Fully Licensed AIFMs

In Norway, AIFs managed by licensed AIFMs primarily attract professional investors. The FSAN’s 2023 report highlights that with the exception of fund of funds, all categories of AIFs comprise over 80% professional investors. The high proportion of professional investors has 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 in such funds could potentially result from fund of funds implementing feeder fund structures that allow non-professionals to invest “second hand” in PE funds (among others) 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 cannot be marketed to non-professional investors. Nonetheless, some funds include non-professional investors who have either joined through reverse solicitation or who were long-standing investors prior to the AIFM Act coming into force in 2014.

According to the FSAN’s 2023 report, as of the end of 2023, 74 out of 289 funds managed by sub-threshold AIFMs had 6% of their invested capital sourced from non-professional investors. This figure represents a 3% decline from 2022, a trend that is consistent across all fund categories.

In Summary

The Norwegian asset management landscape is characterised by the significant presence of professional investors, indicating a robust demand for alternative investments within this demographic. Conversely, the gradual decline in participation by non-professional investors highlights the ongoing challenge of attracting this segment.

In the Norwegian regulatory framework for AIFs, there are no explicit restrictions regarding the use of side letters. These are generally permitted, although 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.

It has become common practice, and is often expected by investors, for funds to incorporate a most-favoured-nation clause relating to side letters.

Recently, 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.

The marketing of an alternative fund depends on whether the AIFM is licensed, as well as the chosen fund structure, as further described in 2.2 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:

• authorised and/or regulated financial institutions;
• certain government entities, supranational and international institutions;
• large corporates; and
• certain institutional 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.

AIFMs are permitted to market AIFs to local investors, and it is common for AIFs established in Norway to include local investors in their client base. Regulation differs between marketing to professional investors and non-professional investors.

EEA AIFMs

An EEA AIFM  may market a Norwegian or EEA AIF to professional investors in Norway, subject to complying with a notification procedure. The marketing may commence upon the AIFM receiving notice from its home state authority that its passporting notification has been forwarded to the FSAN.

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 subject to 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. The final steps towards implementation of the CBDF in Norway was completed in Council on 9 August 2024 and the CBDF rules came into force on 1 October 2024. The CBDF introduced harmonised rules for marketing funds from other EEA states, including a regime for so-called  pre-marketing for EEA AIFMs. Non-EEA managers and EEA managers (in respect of non-EEA funds, and feeder funds to non-EEA funds) will not be permitted to conduct pre-marketing in Norway.

Reverse Solicitation

Under Norwegian law, accepting subscriptions/placements (without a marketing authorisation) based on reverse solicitation from investors is permitted in limited circumstances, where subscriptions are made exclusively at the initiative of the investor without any prior solicitation from the AIFM (or anyone acting on its behalf). Reverse enquiry is traditionally interpreted “narrowly” by the FSAN, implying that managers should only rely on this avenue for “true” reverse solicitation scenarios.

Since the laws implementing the CBDF Directive came into force on 1 October 2024, an AIFM is not able to rely on reverse solicitation for a period of 18 months following the initiation of pre-marketing of the AIF.

Fees

A new fee regime was introduced on 1 January 2024 affecting cross-border activities into Norway by non-Norwegian AIFMs and UCITS managers. The regime includes a NOK15,000 one-time processing fee for applications by non-EEA AIFMs to market AIFs to professional investors, a NOK8,000 one-time processing fee for non-Norwegian EEA AIFMs to market non-EEA AIFs or feeder AIFs to professional investors, and a NOK25,000 one-time processing fee to market AIFs managed by non-Norwegian AIFMs to non-professional investors.

An additional fee, set annually and distributed among supervised entities, will be billed. In 2024 this annual fee was NOK7,000 for each AIF under supervision.

The use of compensation and placement agents varies depending on the specific situation and the AIF’s specific needs. Generally, AIFMs seek help to raise capital, but there are limited regulatory requirements on the AIFM’s part with respect to using it, other than ensuring that the agents have the necessary authorisation (if required) and ensuring that remuneration models comply with the relevant rules on inducements.

The provision of assistance in relation to placements of financial instruments, such as units in funds, is often 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 under 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 double tax treaties between Norway and other states. Norwegian limited partnerships do not qualify for the treaties, but their underlying partners may.

The FATCA and CRS compliance regime in Norway broadly follows 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 subject to the Norwegian AML Act (transposing EU AML directives into Norwegian law). The funds, irrespective of their structure and type (regulated/unregulated), are not subject to the AML Act themselves. The FSAN states 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 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 as well as into the Norwegian Personal Data Act, which has been in effect since 20 July 2018. Managers and funds must 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.       

When the pre-marketing rules under the CBDF Directive came into force in October, pre-marketing became 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.