15th August 2019
Following a lengthy process through the EU Commission and Parliament, the proposed amendments regarding harmonisation of pre-marketing across the EU have now been agreed. On August 2nd 2019, a two year implementation period began, requiring all member states to apply the new rules from August 2021.
At present, AIFMD regulates the “marketing” of a fund to investors, but does not specifically discuss “pre-marketing”. Consequently, the definition of pre-marketing varies between each member state, with some countries such as Spain taking a more restrictive stance on allowing any pre-marketing activities compared with for example, the UK.
Harmonisation of Pre-Marketing Definition
On the face of it, the proposed amendments to the directive are helpful where pre-marketing is concerned. This is especially so as the original position considered before the EU Commission states that “information which amounts to a prospectus, offering documents or constitutional documents, whether in draft or final form” would constitute marketing, as opposed to pre-marketing. However the Directive adopted states that such information in draft form, but not final form can indeed constitute pre-marketing. That is to say, a manager is able to provide a potential investor a draft PPM/LPA (subject to certain warnings, and not allowing an investor to subscribe to shares or units in the AIF) without being required to register for formal marketing permissions in said member state. Pre-marketing on this basis only requires a notification to be filed with the AIFM’s home state regulator within 2 weeks of commencement, rather than formal registration for marketing (which requires that the AIF itself is established, the AIFM appointed and the filing of a PPM with the regulator,) thus saving fees and time to be able to reach potential investors in the EU. The amendments also allow pre-marketing to take place for a pre-existing AIF, an important point which was not possible in the earlier drafts put before the legislative bodies.
Reverse Solicitation for EU AIFMs
Under the amended directive, it will indeed be easier to test the waters in a number of European countries without needing to register for full marketing permissions. However, one provision of note states that any subscription by investors, within 18 months of the EU AIFM having begun pre-marketing, to units or shares of an AIF referred to in the information provided in the context of pre-marketing, or of an AIF established as a result of the pre-marketing, should be considered to be the result of marketing and should be subject to the requirements of the formal marketing procedures. The result? Potentially the end of reverse solicitation in the EU, where the AIFM has filed a pre-marketing notification. Presently, it has not been made clear whether this restriction applies to i) each investor approached during the pre-marketing, ii) each country that is included in the pre-marketing notification or iii) the whole EU. In the most restrictive interpretation, the position may be that if a pre-marketing notification is filed in one member state, than reverse solicitation cannot be relied upon for any EU investor, regardless of location, or if the subscription is a result of a genuine reverse solicitation enquiry.
These amendments are unlikely to eliminate the possibility of EU AIFMs relying on genuine reverse solicitation where a pre-marketing notification has not been filed to establish private funds, or the establishment by the EU AIFM of joint venture vehicles outside of the definition of an “AIF” under AIFMD (potentially outside of the EU).
Although the amended directive only applies to EU AIFMs, Recital 12 provides that an EU member state may not adopt a regime that is more advantageous for non-EU AIFMs than for EU AIFMs. One possible adoption of this in practice is that a non-EU manager may be required to file for pre-marketing notifications in each relevant jurisdiction for any activities that fall under the definition of pre-marketing. This is in contrast to many EU national regimes currently in existence which allow some pre-marketing activities without any regulatory notification. It is likely then, that once a pre-marketing notification has been filed, the non-EU AIFM may have to at least register formally for marketing under National Private Placement Rules for any investor being admitted into the fund for the next 18 months (subject to the scope of the restriction of reliance on reverse solicitation as discussed above for EU AIFMs) in the relevant jurisdiction.
A final point of note is that these amendments may likely apply to UK managers regardless of whether the UK becomes a third country under AIFMD or not, to ensure it receives some equivalence treatment. However, the national law for EU AIFMs pre-marketing to UK investors is yet to be reviewed, pending the implementation period of these new amendments.
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