Fund Finance Laws and Regulations 2024

Overview

Overview of the Danish market

The Danish private investment funds market has grown significantly over the last decade but remains a relatively small market compared to more popular fund domiciles such as Luxembourg. The rise in activity has mainly been driven by the increasing appetite for alternative investments among the largest Danish pension funds together with the ability of a number of domestic managers to successfully scale their businesses and accelerate their investment activities and fundraising outside Denmark and the Nordics in recent years. As a natural consequence of the increasing growth in both numbers and size of Danish private investment funds, we are seeing an increasing demand for fund financing in the Danish market.

The Danish fund financing market is predominantly serviced by the larger Scandinavian banks with a strong presence in the Danish market. Though, a number of smaller domestic banks have successfully specialised in servicing the financing needs of the smaller Danish investment funds and their managers, offering financing solutions covering investment level (i.e. acquisition finance), fund level (e.g. subscription line facilities) and above fund level (i.e. GP/sponsor facilities) on competitive terms. However, foreign financial institutions and specialised credit funds are showing an increasing interest in the Danish market as it has started to mature, especially focusing on subscription facilities to the largest Danish funds but also NAV-based fund financing, as funds are increasingly requesting NAV facilities in order to achieve additional flexibility and liquidity. Even though we have seen increasing interest in NAV facilities among Danish banks, the local banks remain somewhat reluctant to enter this space as it remains unfamiliar terrain.

Legal framework

The Danish regulatory framework surrounding Danish investment funds and their managers is primarily based on EU legislation and consists mainly of Directive 2009/65/EC relating to the undertaking for collective investment in transferable units (the “UCITS Directive”) and Directive 2011/61/EU on Alternative Investment Fund Managers (the “AIFMD”). The AIFMD has been implemented in Danish law through the Danish Alternative Investment Fund Managers Act (the “AIFM Act”), and the UCITS Directive has been implemented in the Danish Investments Funds Act (the “UCITS Act”). These Danish acts are supplemented by local executive orders and the various applicable EU regulations.

Other notable legislation is the Danish AML Act (implementing the latest European AML Directive), which sets out AML requirements applicable both to fund managers and domestic fund financing lenders, and the European Prospectus Regulation (EU 2017/1129) on prospectus requirements, which may be of relevance when interests in Danish alternative investment funds (“AIFs”) are offered.

Danish alternative investment fund managers (“AIFMs”) must be either registered with (i.e. sub-threshold managers) or fully licensed by the Danish Financial Supervisory Authority (in Danish: Finanstilsynet,hereafterthe “DFSA”). Danish managers of undertakings for collective investment in transferable securities (“UCITS”), which are normally more retail-investor oriented, must be fully authorised by the DFSA to operate. As of late 2023, there were approximately 240 AIFMs in Denmark, of which only approximately 20% were full-scope authorised AIFMs.

Fund formation and finance

Types of funds

In …

Editor’s Note

This chapter has been written by Mads Kjellerup Dambæk, Kristian Kaltoft Nielsen, Philip Hundahl from Accura Law Firm – FF24 – Denmark in 2024 who was exclusively appointed as a leading professional in their field by Global Legal Group, GLI’s publisher. The chapter has been carefully reviewed, edited and audited by GLI’s in-house editorial team to ensure relevance and house style. Anti-plagiarism and AI-detection tools have also been applied to confirm originality.