Changes to AIFMD Marketing Rules Impact on Fund Managers
Wednesday March 31, 2021
On August 2, 2021, changes to the rules for the marketing of funds will come into force in the European Union (“I”). The revised rules (the “Marketing rules“) Modification of the existing regulation for the marketing of alternative investment funds (“AIFs“) According to the directive on alternative investment fund managers (2011/61 / EU) (“AIFMD ”). These changes are put into effect by the EU Regulation 2019/1156 and the EU Directive 2019/1160.
The following summarizes the key suggestions, as per the Marketing Rules, that are likely to affect alternative mutual fund managers. “AIFMs”) Below.
Harmonized definition of “pre-marketing”
The marketing rules contain a definition of what “pre-marketing” means in the EU member states. Under the current regime, approval is only required if the promotion of funds would fall under the AIFMD definition of “marketing”. However, the EU member states have different views on what is meant by “marketing” in the context of the AIFMD, which leads to different interpretations of permitted and restricted marketing in the EU member states. The marketing rules address this by providing a harmonized definition so that fund managers can more clearly recognize in future which activities constitute “pre-marketing”.
The key elements for the new pre-marketing definition are as follows:
Information (direct or indirect) on investment strategies or ideas must be provided.
by or on behalf of an EU AIFM (see Section 6 below for non-EU AIFMs);
to professional investors in the EU;
to test investors’ interest in an AIF that either:
not yet established; or
is established but has not yet been registered for marketing to the competent regulatory authority of the EU member states; and
The provision of information must not constitute an offer or a placement for the investor.
The proposed definition is intended to clarify what “pre-marketing” is, but it remains to be seen how this will be interpreted by the individual EU member states and whether the various regulatory authorities continue to pursue different approaches in practice.
Conditions for the “pre-marketing”
The marketing rules change the AIFMD by stipulating that “pre-marketing” can be carried out by or on behalf of an authorized EU AIFM. except Where:
The information made available to potential professional investors is sufficient to enable investors to purchase shares or shares in a particular AIF.
The information made available to potential professional investors will be subscription forms or similar documents (whether as a draft or a final form). or
The information presented to potential professional investors is constitutional documents, a prospectus or the offer of documents from an AIF that has not yet been set up in its final form.
The above would represent “Marketing” instead.
The marketing rules also provide that a draft prospectus or offer memorandum in the context of “pre-marketing” may not contain enough information for an investor to make an investment decision and must contain appropriate disclaimers. The Marketing Rules affirm that providing a subscription contract or definitive form for PPM is “marketing” rather than “pre-marketing”.
Notification of pre-marketing
The marketing rules stipulate that EU AIFMs must notify their regulatory authority in their home member state (in the form of an “informal letter” on paper or electronically) within two weeks of the start of the “pre-marketing” in a member state. The letter must:
Indication of the Member States and the periods in which the pre-marketing takes place or has taken place; and
Provide a brief description of the pre-marketing, including information on the investment strategies presented and, if applicable, a list of the AIFs and AIF compartments that are subject to the pre-marketing.
The regulatory authority of the EU AIFM in the member states (e.g. in the case of a Luxembourg AIFM this would be the Commission de Surveillance du Secteur Financier). “CSSF”)) Would then notify the EU member states in which the EU AIFM expects pre-marketing activities.
Impact on Intermediaries and Certain UK Fund Sponsors
If an EU AIFM uses a third party provider to carry out pre-marketing activities on its behalf, the third party is also subject to the requirements of the marketing rules. It would also have to be ensured that the third party is either an authorized EU AIFM, an authorized EU investment firm or an EU-bound representative in accordance with the Directive on Markets in Financial Instruments (“MiFID”), An EU approved credit institution or an EU UCITS manager.
Some intermediaries are currently operating outside of the regulatory arena for their marketing and pre-marketing activities. However, these changes will make it more difficult to think of this approach as marketing and, in a broader sense, marketing activities for investors will need to be carried out by certain types of authorized companies or tied agents in the EU (as detailed above).
This change will have an impact on sponsors of non-EU funds, as they would not be able to carry out pre-marketing or marketing activities in EU Member States in relation to an EU AIF managed by an EU AIFM, even if these sponsors were to invest in advice or delegated portfolio management services to the EU AIFM.
Non-EU companies affected by this change would need to consider possible solutions to facilitate the promotion of such AIFs in the EU and market practice on these issues should evolve. The spectrum of possible emergency options includes:
EU AIFM markets the fund with the support of individuals from the fund sponsor.
Appointment of an intermediary agent at your own EU-authorized company or an EU-MiFID-bound agent; or
Establishment of an EU MiFID company or a tied agent and implementation of EU marketing activities through this institution.
The feasibility of each of the above options and the risks involved should be assessed on a case-by-case basis. Fund managers and sponsors should consider the relevant aspects that affect their existing marketing activities and ensure that all relevant external service providers are familiar with the chosen approach.
Possible restriction of trust in “reverse advertising”
The Marketing Rules provide further clarity regarding reverse advertising. Any subscription by professional investors in the relevant EU member state within 18 months of the start of pre-marketing of the EU AIFM is the result of active “marketing” (which requires the use of the AIFMD marketing passport) under the marketing rules.
The marketing rules are unclear whether this would apply “per investor” or “per Member State”. If the EU regulatory authorities interpret this as “per Member State”, this would mean that after the start of pre-marketing, before an investor can receive fund documentation in the amount of “Marketing”, the corresponding registration would have been required for marketing in this Member State . If EU regulators interpret this on a “per investor” basis, this information can also be used when a second professional investor contacts the AIFM and requests all fund documentation for the second investor prior to an AIFMD approval placed on the market, as no pre-marketing has taken place for this second investor. We would expect the second approach to be the most proportionate in terms of reverse advertising and in line with current market practice.
While the Marketing Rules do not mean that reverse advertising will not be available after the Marketing Rules are in place, it is expected that the circumstances that can be relied on will be narrowed down.
Impact on non-EU AIFMs
The EU legislation is currently designed in such a way that the marketing rules only apply to EU AIFMs that manage EU AIFs and consequently do not apply to non-EU AIFM marketing funds under the national private placement regulations of the EU member states (“NPPRs”) They also do not apply to EU AIFMs that market non-EU AIFs under the NPPR. However, the recitals of the EU Directive on the marketing rules state that EU Member States should not enact laws and regulations that are more advantageous for non-EU AIFMs than for EU AIFMs, and therefore certain EU Member States that have marketing rules do apply to all funds marketed under the NPPR (although this should continue to be checked). For the marketing of AIFMs in the EU under the NPPR on or after August 2021, it is advisable to plan on the basis that the marketing rules for such marketing will apply.
Effects in the UK
The marketing rules have not (and are not expected to apply) in the UK as the UK is no longer part of the EU and the transition period to Brexit (December 31, 2020) has expired. The marketing of UK AIFMs in the EU via the NPPR must monitor whether the EU Member State they wish to market to is applying the marketing rules (as is likely to be the case).
Fund managers and sponsors will undoubtedly have adjusted their marketing approach under the AIFMD since it came into force and will now have to rethink how they approach marketing under the marketing rules starting in August this year and should plan accordingly to ensure that they are compliant when the market rules come into force.
© 2020 Proskauer Rose LLP. National Law Review, Volume XI, Number 90