The future of reverse solicitation in the EU in the context of the AIFMD
On 16 April 2019, the European Parliament adopted the final text of the Directive amending (amongst others) the AIFMD (the Amending Directive).
The Amending Directive has the stated objective of establishing uniform rules on the publication of national provisions concerning marketing requirements for collective investment undertakings in relation to their cross-border activities.
Fund promoters heading out on their marketing roadshow, armed with an outline of the features of a potential alternative investment fund (AIF), would typically test with prospective investors the interest and appetite for certain strategies before proceeding with the establishment of the AIF. This flexibility allows promoters to avoid launching projects which would not find favour with investors with the consequent advantage of saving costs and time.
Pre-marketing and reverse solicitation
In Luxembourg, (amongst other jurisdictions - notably the UK) the presentation of draft offering documents in relation to an EU AIF by an authorised EU AIFM to prospective EU Professional Investors does not currently constitute marketing, provided no binding subscription can be made.
Following a roadshow, if an authorised EU AIFM responds to unsolicited enquiries from potential EU Professional Investors and follows up with offering documents, subscription forms, etc. (so-called “reverse solicitation” or “passive marketing”), this usually does not trigger the marketing notification obligation under the AIFMD. This approach is common amongst smaller managers, building their assets under management and launching their first funds.
The definition of pre-marketing and the conditions under which it is permitted vary considerably within the EU, noting that in certain Member States there is no concept of pre-marketing at all. To address these divergences, the Amending Directive introduces a harmonised definition of “pre-marketing”:
“pre-marketing” means provision of information or communication, direct or indirect, on investment strategies or investment ideas by an EU AIFM or on its behalf, to potential professional investors domiciled or with a registered office in the Union in order to test their interest in an AIF or a compartment which is not yet established, or which is established, but not yet notified for marketing in accordance with [the AIFMD] in that Member State where the potential investors are domiciled or have their registered office, and which in each case does not amount to an offer or placement to the potential investor to invest in the units or shares of that AIF or compartment.
Any subscription of shares or units in an EU AIF by EU Professional Investors within 18 months of the authorised EU AIFM commencing pre-marketing will be deemed to be “marketing” under the AIFMD and subject to the marketing notification obligations. If, further to pre-marketing, the subscription occurs after the 18-month period, then the marketing notification procedures under the AIFMD are not applicable.
Pre-marketing notification requirements
The Amending Directive requires an authorised EU AIFM to send, within two weeks of commencing pre-marketing, an informal letter to its regulator setting out, (amongst other matters), the Member States in which it has engaged in pre-marketing, the periods during which it occurred or continues to occur and, if relevant, a list of the AIFs and compartments subject to pre-marketing.
What does this mean for promoters?
The Amending Directive will only affect a promoter that is an authorised EU AIFM with an EU AIF, pre-marketing to EU Professional Investors.
For a non-EU AIFM, with an EU or non-EU AIF, and for an authorised EU AIFM with a non-EU AIF, the Amending Directive:
- will not affect the existing marketing position in respect of EU/EEA retail investors. The rules of the EU Member State where the investor is domiciled will prevail and apply to pre-marketing and reverse solicitation.
- will not affect the existing marketing position in respect of EU/EEA Professional Investors, where the national private placement regime will continue to apply.
The Amending Directive will seemingly not affect a promoter that is not an authorised EU AIFM that has not yet identified an authorised EU AIFM (to be used as a third party management company solution) because only a third party engaged in pre-marketing on behalf of an authorised EU AIFM will be impacted.
Transposition into national law
The Amending Directive is required to be transposed into national law within two years of the entry into force of the Directive (being 20 days of its publication in the Official Journal of the EU). Full implementation can therefore be expected to occur sometime in the summer of 2021.
If you have any questions, please contact Vanessa Molloy or your usual Harneys contact.
Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (AIFM).
Investors, which are considered to be professional clients or which may, on request, be treated as professional clients within the meaning of Annex II of MiFID II.