This week sees the introduction of significant changes to the
rules and regulations governing the marketing of alternative
investment funds (“AIFs“) to investors
in the Member States of the European Economic Area (the
“EEA“) with both the deadline for
implementation of the Cross Border Marketing Directive1 (the
“Directive“) and the Cross Border
Marketing Regulation2 (the
“Regulation“) coming into force. For the
avoidance of doubt, the EEA no longer includes the United
Kingdom.
The New, Unified Pre-Marketing Regime
Since the introduction of the EU Alternative Investment Fund
Managers Directive3 (the
“AIFMD“), one of the fundamental issues
for managers has been the inconsistent application of marketing
rules in individual member states around the ability of managers to
approach potential professional investors and to sound out their
potential interest in an AIF before having to make a formal
registration under the relevant national private placement regime
(“NPPR”) for a non-EEA AIF or file for a
passport for an EEA AIF. A key component of the new Directive is an
attempt to bring in a harmonised regime of definitions and
procedures around “pre-marketing” of AIFs in the EEA for
this purpose.
For the purposes of the AIFMD,
“marketing” means a 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 of an alternative investment
fund it manages to or with investors domiciled or with a
registered office in the EEA. An EEA-AIFM needs to ensure a
“passport” for the purposes of AIFMD is in place and a
non-EEA AIFM needs to conduct such marketing following registration
or approval under the relevant Member State’s NPPR. Both routes
involve the AIFM incurring compliance and reporting obligations in
relation to the local regulator and investors. An AIFM that fails
to do so risks incurring fines and public censure and any
subscriptions entered into as a result of unauthorised marketing
may be unenforceable.
On the other hand, a new definition of “pre-marketing”
is now inserted in AIFMD, which means the provision of information
or communication, direct or indirect, on investment strategies or
investment ideas by an EEA AIFM or on its behalf, to potential
professional investors domiciled or with a registered office in the
EEA 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
Article 31 or 32, 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
sub-AIF.
The information presented to potential professional investors
must not:
- be sufficient to allow investors to commit to acquiring units
or shares of a particular AIF; - amount to subscription forms or similar documents whether in a
draft or a final form; - amount to constitutional documents, a prospectus or offering
documents of a not-yet-established AIF in a final form; or - contain information sufficient to allow investors to make
investment decisions.
Practically, this means that a manager should not send out
subscription agreements (even in draft form) prior to any
registration for marketing being in place and all AIF documents
should be sent out clearly in draft form and with additional
disclaimers included for the purpose.
Under the Directive, an EEA AIFM must send a notification to its
own regulator specifying in which Member States it has been
conducting pre-marketing, within two weeks of having begun
pre-marketing, listing the AIFs or sub-AIFs which it has been
testing appetite for.
Application of the New Rules to NPPR
The pre-marketing rules in the Directive technically only apply
to EEA AIFMs managing EEA AIFs. This is because the passported
marketing regime between Member States is intended to be
“maximum harmonisation”, whilst NPPR is “minimum
harmonisation”, which means that each Member State may decide
whether to adopt NPPR at all and, where so, how much to “gold
plate” the rules. Consistent with this approach, the Directive
makes it clear in the recitals that Member States should ensure
that their implementation of the Directive, and in particular the
pre-marketing regime, should not in any way disadvantage EEA AIFMs
vis-à-vis non-EEA AIFMs, so the same approach to
pre-marketing and marketing documentation should be assumed to be a
baseline for approaching EEA investors. As yet, it is only starting
to become apparent to what extent Member States will adopt the same
rules in respect of third country AIFMs going through the various
NPPRs, including the need to notify regulators of pre-marketing
activities. However, at this early stage it appears that the most
NPPR friendly jurisdictions are adopting a level playing field
approach to the rules.
Where Does This Leave “Reverse
Solicitation”?
Reverse solicitation covers a situation whereby a professional
investor located in the EEA may invest in AIFs on its own
initiative. The Directive now makes it clear that there can be no
reverse solicitation of an investor who is the recipient of any
“pre-marketing”. In addition, the Directive clarifies
that any subscription by professional investors within 18 months of
the AIFM having begun pre-marketing shall be considered to be the
result of marketing. What remains unclear is the extent to which
this 18 month moratorium applies to each investor, to each country
or indeed across the whole EEA. In the absence of taking specific
advice on the interpretation in a particular jurisdiction, it would
be sensible to assume that this applies on a member state basis and
that, once any pre-marketing has been conducted in that member
state, a registration will be necessary to close in any investors
from that jurisdiction for the following 18 month period (be aware
that it is still possible certain Member States will take an even
more restrictive interpretation and assume the 18 month period
applies across the EEA).
When Exactly is the Directive in Force?
Whilst many key Member States have already met the 2 August 2021
deadline, there are some Member States who have not yet adopted
local legislation implementing the Directive. Since there will be
potential differences in transposition and implementation of the
Directive’s requirements, particularly for non-EEA AIFMs,
outcomes may be different in the Member States and local advice
should be taken before proceeding.
Marketing Documentation
In addition to the Directive, the Regulation now brings in a
harmonised regime for EEA AIFMs to consider in terms of the
preparation and contents of marketing communications, including a
framework against which national regulators can ensure that
marketing communications comply. In particular, the Regulation
requires that such communications fair, clear and not misleading
and adequately describes the risks and rewards of investing in the
AIF.
Under the Regulations, ESMA is empowered to issue Guidelines
with more detail on how to comply with those requirements, which
were issued in March 20214 and will come into force this
autumn. As with the pre-marketing rules, the requirements of the
Directive and the ESMA Guidelines strictly only apply to EEA AIFMs
but again it would be sensible to assume national implementation
will ensure at least a level playing field with non-EEA AIFMs
marketing to potential EEA investors.
The ESMA Guidelines make it clear that any general publication
of references to an AIF can only be made once the relevant
marketing approvals are in place (as opposed to the limited and
direct nature of pre-marketing). The Guidelines cover all
promotional documents which make reference to specific AIFs (or
which are implicitly identified), regardless of format or medium,
including social media. However, this does not cover the legal and
regulatory documentation for the AIF itself including financial
reports and meeting notices. Marketing communications must clearly
be identified as such (even to the extent of including an
appropriate hashtag) and shorter communications must always contain
a disclaimer referring potential investors to the main offering
document and ensuring that any information is always presented in a
manner consistent with the full documentation
suite.
The Guidelines then go into more detail on ensuring the fair
presentation of risks and rewards and that communications are fair,
clear and not misleading, not least in relation to information on
costs, past and future performance and sustainability-related
aspects, which must tie in appropriately with the EU Sustainable
Finance Disclosure Regulation (the
“SFDR“)5.
Footnotes
1
Directive (EU) 2019/1160 with regard to cross-border distribution
of collective investment undertakings
2
Regulation (EU) 2019/1156 on facilitating cross-border distribution
of collective investment undertakings
3
Directive (EU) 2011/61 on Alternative Investment Fund Managers and
amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC)
No 1060/2009 and (EU) No 1095/2010
4 See https://www.esma.europa.eu/press-news/esma-news/esma-publishes-guidance-funds%E2%80%99-marketing-communications
for a link to the Guidelines
5
Directive (EU) 2019/2088 on sustainability‐related
disclosures in the financial services sector
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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