16 March 2015

Marketing in Europe - how are non-EU fund managers doing this in practice?

For non EU funds with non EU fund managers, the options currently available to market to investors in Europe is to market under the national private placement regimes (NPPRs) of those countries, alternatively through reverse solicitation or, certain jurisdictions, using a sub threshold EU feeder. The same options apply to Non EU funds with EU managers since even though the EU manager will already be subject to AIFMD, the marketing passport is not available to non-EU funds. From later in 2015 there may be a non EU fund manager’s passport which means that non EU fund managers may have the option to market under NPPRs or under the marketing passport, however marketing under the passport will require the non EU manager to opt in to substantially full compliance with the AIFMD and obtain authorisation from a EEA member state of reference (MSR). There are many non EU fund managers out in the market now marketing non EU funds to EU investors, so how are they doing it?

Pre marketing

Before we get into the detail of full marketing, it is worth spending a few moments on pre marketing – most non EU fund managers want to be able to get out there and chat to investors and assess the appetite for their fund before they start spending money on finding out about NPPRs. Marketing is the direct or indirect offering or placement at the initiative of the alternative investment fund manager ("AIFM") or on behalf of the AIFM of units or shares in an alternative investment fund that managed to or with investors domiciled or with a registered office in the EU. Pre marketing is allowed without notification in the UK (‘marketing’ only occurs when funds are available for purchase). Germany Austria, Denmark, Finland, the Netherlands, Norway, Sweden offer the availability to carry out some limited pre marketing, although their definition of what constitutes pre marketing varies. Belgium, Luxembourg and Spain don’t offer any guidance on premarketing, whilst France and Italy do not allow any pre marketing at all - marketing in any form is only allowed under full AIFMD compliance - which is not available to non EU managers. So it is worth being circumspect from the outset of your marketing drive.

Marketing under NPPRs

In order to market under the NPPRs, certain requirements under the AIFMD must be met. Firstly, there must be regulatory co-operation agreements between the applicable EU regulator and the non EU regulator. South Africa has signed a MOU with 25 European jurisdictions. Mauritius has signed with a substantial number of key European jurisdictions and accordingly Mauritian managers are well placed to market under NPPRs, as have the Cayman Islands and the BVI, though in each case there are certain exceptions. . Secondly, the country in which the manager and the applicable fund is established must not be listed as a non- cooperative country by FATF on AML and terrorist financing.

Each country has different requirements under their NPPRs and authorisation is not guaranteed. Countries such as Austria, Denmark, Finland, Germany, Norway, Spain, Sweden generally require detailed applications which may be time consuming and also may include other requirements such as annual fees and appointment of depositaries. The UK, Belgium, the Netherlands and Luxembourg adopt a lighter touch approach, requiring notification only, whilst France and Italy do not allow any marketing under NPPRs at all.

It is worth noting that where an investor has an office in the EU, and one outside of the EU, it will not necessarily work to simply market to the ex EU office – this may work in some cases but if the decision makers are in the EU then it is likely to be regarded as avoidance.

There are several requirements that need to be complied with in addition to the country requirements – namely (i) reporting to investors on an on-going basis; (ii) ongoing disclosure to the regulators in the EU states in which the manager is marketing and finds investors and (iii) compliance with private equity provisions relating to obligations when a fund acquires a non-listed company in the EU (compliance with controller notifications and restrictions on asset stripping).

Reverse solicitation

Passive marketing through reverse solicitation is not covered by the AIFMD, only active marketing, but each country has its own interpretations to what constitutes reverse solicitation - so this route should be approached with caution. There have been a lot of managers communicating on the basis that it reverse solicitation, but whilst this will always be acceptable where it is genuine there are clearly some people pushing the boundaries. It is possible that there will be some sort of regulatory backlash to this, so even where the documents point to reverse solicitation it is important to look at form over substance and the whole basis of the relationship and nature of the communications being undertaken.

What is sub threshold marketing?

In some jurisdictions there are lighter rules allowing marketing of sub-threshold EU funds more easily than non-EU funds. A non EU fund manager marketing a non EU fund may therefore consider using an EU feeder to market to certain investors. As this EU feeder will have an EU GP, it may be subject to more lenient rules than if the non EU manager marketed under NPPRs. Sub threshold marketing means marketing an EU fund of under Euro 500,000 (for a closed-ended PE type fund, the figure would be 100,000 for an open-ended fund). Marketing an EU feeder fund which falls below the threshold can be done in certain jurisdictions with more lenient requirements. For example, marketing in the Germany under NPPR rules entails a detailed application which can take up to two months, a depositary appointment and a fee, whereas sub threshold marketing just requires notification to BaFin and is significantly less intrusive. Marketing a sub-threshold EU feeder fund into the UK does not even require a regulatory filing to be made. You will need to consider carefully the cost and advantages (there may be additional advantages if investors have requirements for EU vehicles) of setting up and running an additional EU vehicle against the cost of reduced administration and timing requirements.

What happens if we get it wrong?

If you market unlawfully, in some states you could be guilty of a criminal offence and subject to imprisonment or a fine. Investors may also be entitled to recession/ withdrawal rights.

Country Pre-marketing allowed (subject to specific country restrictions)? What are the NPPR requirements? Is reverse solicitation allowed?* Can I market using a sub-threshold EU feeder?
Austria Application and requirements
Belgium No guidance Notification No guidance
Denmark Application and requirements No guidance
France N/A N/A – Full authorisation under AIFMD only No
Finland Application and requirements
Germany Application and requirements
Italy N/A N/A - Bank of Italy authorisation No
Netherlands Notification No (potentially changing 2015)
Luxembourg No guidance Notification No guidance
Norway Application and requirements N/A No guidance
Spain No guidance Application and requirements No guidance No guidance
Sweden Application and requirements No guidance No
UK Notification

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