In March 2018, the European Commission published its proposal for a draft package of measures aimed at reducing barriers to the cross-border distribution of investment funds (see our previous update on this). On 18 April 2019, the European Parliament backed the Commission's proposal, including measures to improve the EU's investment fund market. The legislative package is due to be adopted by the European Council and Parliament later this year, to come into effect in 2021.
"Pre-Marketing": a new prescriptive definition
The rules will include a concept of "pre-marketing" that will allow EU AIFMs to engage in certain pre-marketing activities with prospective EU professional investors that will not constitute AIFMD marketing. The parameters around which EU AIFMs may lawfully carry out pre-marketing are as follows:
- Pre-marketing involves the provision of information on the investment strategy or investment idea in relation to an AIF (or compartment of an AIF) which is not yet established or an AIF that is established but not yet notified for AIFMD marketing.
- Pre-marketing activities must not to amount to an offer or placement – draft documents can be circulated to prospective investors but no subscription documents (whether in draft or final form) should be made available.
- Draft marketing documents should clearly indicate that they: (i) are in draft form and subject to change and (ii) do not constitute an offer or invitation to subscribe.
- If a professional investor subscribes to the AIF (or another AIF managed by the AIFM which has “similar features”) within 18 months of the pre-marketing having begun, this will be considered to have been the result of AIFMD marketing.
However, with the implementation of the new definition, AIFMs will be subject to an additional layer of compliance. AIFMs will be required to ensure that pre-marketing activities are properly documented and send, within 2 weeks of engaging in pre-marketing, an informal letter or email to their home national competent authority (NCA). The notification should state:
- the Member State(s) where they have conducted pre-marketing activities;
- the time periods involved; and
- a brief description of the investment strategies and, if relevant, the AIFs that were the subject of pre-marketing.
The NCA will then inform the NCA of the Member State where pre-marketing has occurred.
So what about reverse solicitation?
The rules significantly narrow the scope of reverse solicitation, as any subscription by an investor into the AIF within 18 months of the pre-marketing would be deemed to have arisen as a result of AIFMD marketing. However, the rules are not clear as to whether this captures just the investor that was the subject of the pre-marketing activity, or all investors in the Member State in which pre-marketing occurred.
Let's not forget about Brexit….
These legislative changes apply to EU AIFMs only and, as such, further consideration will be required in the context of the Brexit landscape. When the UK withdraws from the EU, it will likely become a third country, requiring UK AIFMs to market their funds using the Article 42 National Private Placement Regimes, unless and until they are given access to the AIFMD third country passport.