Fund marketing post-Brexit: considerations for private fund managers
Partners Stephen Robinson and Sam Brooks were joined by senior solicitor Harriet Miller to discuss upcoming changes to the EU’s marketing regime and the implications for UK AIFMs.
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After Brexit, the AIFMD marketing passport is only available to EU AIFMs. While sub-threshold AIFMs have never been able to utilise the passport, UK AIFMs will no longer be able to make use of the passport to market either their EU or UK AIFs. In the absence of other solutions (see below), UK AIFMs will need to rely on National Private Placement Regimes (NPPR) to market their AIFs in the EU. The particular regimes adopted by each member state are an important driver in AIFMs’ considerations about where to market their funds.
First, AIFMs will need to undertake an analysis of the NPPR rules in each member state in which they might wish to market their AIF(s). This exercise might seem complex, but it is important to acknowledge that small UK AIFMs and non-EU AIFMs have successfully marketed AIFs into the EU via this route for several years.
NPPRs vary widely across Europe. One group, comprising Austria, Italy and (to some extent) France do not permit local marketing. A second and larger group, including Belgium, Germany, Ireland and others, require local regulatory approval and compliance with additional local rules. Finally, the Netherlands, the UK, and (to some extent) France and Switzerland require at most a regulatory notification to begin marketing a fund. Regulatory fees and timescales can drastically differ across jurisdictions.
Jurisdictions have interpreted the concept of “pre-marketing” differently, resulting in divergent local requirements. The EU’s Cross-Border Distribution Regulation and Directive will introduce new rules from 2 August 2021. The rules could standardise EU member states’ approach to pre-marketing and effectively create a pre-marketing passport for EU AIFMs, although not for UK AIFMs or sub-threshold AIFMs. However, we are yet to see national interpretations of the rules to determine whether this outcome will be realised.
The new pre-marketing rules permit AIFMs to communicate information about investment strategies or ideas, by an AIFM or on its behalf, to professional investors to test the interest in an AIF before or after its establishment. However, the rules permit only an EU authorised firm or MiFID agent to undertake pre-marketing activities on behalf of EU AIFMs.
The AIFMD marketing rules will not be triggered so long as the information does not amount to an offer or placement to invest in the units or shares of an AIF. At present there are different national interpretations of “marketing”. However, ESMA is in the process of producing guidelines that will aim to harmonise the differing approaches.
To use the pre-marketing passport, AIFMs must notify their home supervisor, carefully document their pre-marketing programme and include mandatory disclaimers. Crucially, initiating pre-marketing means that reverse solicitation will not be permitted for 18 months. The ban extends to all investors, and not merely those that were engaged in pre-marketing, and across all EU member states.
The situation for UK-based marketing personnel after Brexit interacts with the new AIFMD marketing rules and with the requirement under certain situations to have regulatory permissions under MiFID. The legal structure of an AIFM, such as whether there is an EU group AIFM, and the differences between national interpretations of the AIFMD and MiFID rules, result in differing considerations.
Solutions in the market to facilitate UK marketing personnel engaging in marketing in the EU
- For the personnel of a UK portfolio manager to market in the EU via an EU AIFM and an EU AIF, marketing can continue if it is not deemed to be a MiFID entity in the member state in question.
- A secondment from a UK AIFM to an EU AIFM in the same group might enable marketing to continue if local substance requirements are met (i.e. the secondment is not merely on paper). Chaperoning has also been deemed a possible solution.
- For firms that are marketed frequently in the EU, establishing an EU entity in an EU jurisdiction that becomes a tied agent of a regulated firm that has MiFID permissions might be a viable solution. Host AIFMs and other service providers are now setting up MiFID regulated entities in countries such as Malta and Portugal to offer this service.