US fund managers are increasingly looking to balance their business in Europe

For some US fund managers, Europe represents advanced innovation that's driving their interest in a range of sectors – and most notably in renewables, energy transition, green hydrogen and biotechnology. Meanwhile, spinouts from Europe's top universities are spurring a wave of investible innovation.

Diversification and collaboration

The "repatriation trade" of European investors lowering their US exposure means there is a pool of investors looking to place money with managers who have a global portfolio of investments. These investors have a different set of investment drivers that can balance out any US investor herd mentality.

European investors can also bring a wealth of experience and expertise to the table. Many of these investors have a deep understanding of global markets and can provide valuable insights and guidance. Their involvement can enhance your strategic decision-making and open doors to new partnerships and networks.

Investment boom and supply chains

Governments in various locations across Europe are increasing capital spending in areas such as defense, infrastructure, energy and cybersecurity. This is giving rise to opportunity to invest in the supply chain of these industries as well as in the growth of public-private partnerships.

This boom is occurring amid increasing supply chain diversification in Europe. In order to mitigate tariff risks, some international companies are creating new locally sourced supply chains. The building of these new supply chains takes time, effort and growth capital.

Exchange rate opportunity

The recent decline in the value of the US dollar is making European assets seem more expensive in the short term. However, many economists would advise to look beyond this short-term volatility when looking at long-term investment horizons. Raising euros or British pounds  from European investors may help power US investment. And depending on an investors situation, foreign currency can provide hedging opportunities as well as currency-exposure risk.

Raising capital from European investors

Whether creating a European fund platform to invest internationally or looking to gather capital from European investors, there are a variety of options available for US businesses to progress their objectives and raise capital, including reverse solicitation, private placement, fund establishment and pre-marketing regulation testing.

'Reverse solicitation'

The practice of "reverse solicitation" – where a client initiates engagement with a non-EU firm to request investment services – is generally considered to involve an increasing amount of risk as regulators investigate further the trail of contact between investor and fund.

But reverse solicitation is an approach that is strengthened by a truly reactive approach to investor appetite and robust documentation of investor engagement.

Private placement

A private placement is a more structured approach to capital raising when there is a clear target of investors and fund structure. Selected markets create high hurdles and barriers to entry for a private placement approach but it can be very effective depending on the investor target base and fund solution.

Opportunities and challenges for a private placement approach in European jurisdictions

Key and sources:

Green: Minimal restrictions – the jurisdiction has few regulatory and practical hurdles, making market entry relatively straightforward.

Amber: Moderately restrictive – the jurisdiction has some regulatory and practical requirements that need careful navigation but generally this is manageable.

Red: Highly restrictive – the jurisdiction has stringent regulatory and practical requirements that make market entry challenging.

The sources used for the information are from Osborne Clarke lawyers to whom each jurisdiction refers.

Fund establishment

Some US managers who have sufficient capital investors lined up can go straight to set up a fund platform in Europe. Issues around jurisdiction, structure and terms will need detailed analysis and confirmation.

There are a significant number of service providers who can assist in the creation of a fund platform or onboard clients into a sleeve of an existing fund structure which simplifies regulatory approval and speeds up time to market. Generally, this can be an expensive route with significant financial risk if no major seed investor is secured.

Pre-marketing

When the fund strategy is not set in stone and the investor appetite is unclear then the new pre-marketing regulation in Europe enables US managers to test the market under a clear regulatory Alternative Investment Fund Managers Directive  umbrella.

There are also a growing number of service providers who, for a reasonable initial cost, enable US managers to explore market appetite for their investment thesis.

Osborne Clarke comment

Diversifying your investor base can mitigate risks and enhance stability. A mix of US and European investors can reduce dependence on a single market and create a more resilient funding structure. This can safeguard against potential market fluctuations and ensure a steady flow of capital.

Raising capital from European investors is a strategic move that can unlock numerous benefits for venture and growth funds. It can provide access to a wider pool of resources, investment opportunities, favorable economic conditions, valuable expertise, and enhanced stability.

If you would like to explore this is an opportunity to propel your growth and success please reach out to us – and if you would like the full analysis or to discuss the options for your scenario.