Marketing in Europe: The National Private Placement Regimes

15th September 2020

Since the implementation of the Alternative Investment Fund Managers Directive (“AIFMD”), the National Private Placement Regimes (“NPPRs”) have been the primary route for non-EU managers marketing funds in Europe. We have been supporting a number of these managers in North America and Asia-Pacific since 2014, many of whom have conducted multiple successful European fundraisings.

Each year we work with a number of non-EU managers contemplating European marketing for the first time, and despite the headwinds caused by COVID-19, this year has been no different. AIFMD remains a challenging concept for managers, with a tapestry of rules and requirements presenting a complexity which needs appropriate, experienced service providers to help navigate in a straightforward manner. We continue to provide these services from the UK, and will continue to do so once the Brexit transition period ends on 31 December 2020.

Annex IV Reporting

For the majority of EU countries in which a fund raises capital, there is a requirement under Article 42 of the AIFMD to file an Annex IV report. These filings provide information on the size and strategy of the fund, liquidity profile, and leverage amongst other areas, with the aim of increasing transparency throughout the funds industry. Depending on the AUM of the AIF/AIFM, these reports are required to be submitted quarterly, biannually or annually, with the deadline falling on the last business day of the month following the reporting period end. There are a number of pitfalls that in-house teams can fall into, including;

  • Reporting formats and portals vary between regulators, meaning the process requires somewhat substantial time resource.
  • Mapping the correct data to the same fields between reports can be particularly cumbersome, especially when reporting to several different regulators.
  • Seeking clarification from a local regulator in the case of questions, particularly for in-house compliance and legal teams that likely do not communicate with European regulators regularly, can be extremely tough.
  • Error checking reports can be onerous, and often only a limited description of the problem is provided by the various reporting portals.
  • Input fields expect a certain level of familiarity with the directive, which is hard to obtain for in-house teams not dealing with its intricacies regularly.
  • There is a requirement to “de-register” in the case that marketing is discontinued in a specific jurisdiction, something which is often overlooked and can result in ongoing costs, or even penalties.

Depositary-Lite

In Germany and Denmark, the registration process requires the appointment of a depositary-lite to provide oversight of both the AIFM and the AIF. “Lite” refers to the ability to split the three depositary functions between different providers, although this is not often seen in practice.

For both BaFin in Germany, and the DFSA in Denmark, the depositary is required to be named on the registration documents at the outset, regardless of whether the fund successfully raises capital in the respective countries – something the manager should be aware of when considering their marketing strategy, particularly if the registration is time sensitive. The information the depositary requires is limited to documentation that is already produced, and is usually provided post-event. Examples of key events that the depositary will require documentation for include;

  • New subscriptions
  • Capital calls and distributions
  • Carry payments
  • Acquisitions and disposals
  • Third-party borrowing
  • Quarterly reviews and management accounts

The Future of Marketing in Europe

The implementation of AIFMD was designed to provide a harmonised framework for Europe, but with no sign of third country passports being granted soon, it seems the NPPRs are here to stay. For now, non-EEA AIFMs will need to assess their target fundraising jurisdictions before deciding whether they can successfully fundraise via NPPRs, or whether the setup of a European parallel will be more appropriate. For those using the national regimes, our experience has shown that outsourcing the regulatory requirements to an experienced provider significantly reduces the burden on in-house teams, allowing them to concentrate on more value-add activities.

Finally, ESMA recently released a letter outlining its recommendations for reforms to the AIFMD, and at first review we expect no substantive changes to the National Private Placement Regime in the near term.

Langham Hall is an award-winning provider of Fund Administration, Depositary and AIFMD services to global fund managers. To hear more about how we can help, whatever the requirements, please get in touch with a member of our team.