A new package of measures amending the existing regimes governing the cross-border distribution of funds is due to become law shortly: a Directive (the CBD Directive) will amend the existing regimes for cross-border marketing of funds; and a Regulation (the CBD Regulation) will introduce new standardised requirements for cross-border fund distribution in the EU. The new regime will be directly applicable to EU alternative investment fund managers (AIFMs) and undertakings for collective investment in transferable securities managers and is likely to apply in mid-2021. Even if the UK is no longer a member of the EU by then, UK fund managers will likely be affected under legislation that will ‘onshore’ the regime into the UK. Other non-EU AIFMs may also find that they are affected by consequential amendments individual EU Member States may make to their national private placement regimes. This blog post, based on our full memo available for download here, focuses on the impact on AIFMs.
Pre-marketing by AIFMs
New definition of ‘pre-marketing’
The Alternative Investment Fund Managers Directive (AIFMD) marketing passport only applies to activities that fall within the Directive's definition of ‘marketing’. Individual Member States have taken divergent views about when ‘marketing’ is deemed to begin the CBD Directive attempts to address this by introducing a new definition of ‘pre-marketing’.
In essence, ‘pre-marketing’ is defined as: information or communication relating to investment strategies or investment in order to test investor interest in a fund which is not yet established, is established but is not yet notified for marketing.
The conditions for pre-marketing
An AIFM will ‘not be pre-marketing’ where the information:
- is sufficient to allow investors to commit to the AIF;
- amounts to subscription documents in draft or final form; or
- amounts to final form constitutional or offering documents of a yet-to-be established AIF.
New ‘informal’ pre-marketing letter
The AIFM will be required to send, within two weeks of the start of its pre-marketing, an ‘informal letter’ with details of the pre-marketing to its home Member State regulator.
Pre-marketing by intermediaries
Any third parties which the AIFM uses to pre-market on its behalf will essentially have to be licensed as MiFID investment or EU banks and will be subject to same conditions which apply to the AIFM itself.
Restricted reliance on reverse solicitation
Any subscription by investors in units or shares of an AIF that takes place within 18 months of the pre-marketing will be considered to be the result of marketing and the applicable marketing notification procedures under AIFMD will be triggered. This closes down any possibility of arguing that subsequent investments can be considered to result from reverse solicitation.
Marketing to retail investors
New requirements under AIFMD will apply when any AIFM (ie EU or non-EU) is marketing units or shares in an AIF to retail investors. The AIFM will be required to put in place certain ‘facilities’ in the relevant Member State to perform certain defined tasks.
Prior notification to regulators
Where an AIFM proposes to market to retail investors in a particular EU Member State, the regulator in that jurisdiction may require prior notification of the marketing communications which the AIFM intends to use. The relevant national regulator may request the AIFM to amend the marketing communication at any time within 10 working days of being notified.
‘De-Notification’ of Marketing
The current AIFMD rules are unclear on when an AIFM can be considered to have ceased marketing in a Member State. A new provision in AIFMD will clarify that an AIFM may only discontinue the marketing of units or shares of an EU AIF in a jurisdiction in which it has exercised the marketing passport if the following conditions are met:
- the AIFM has publicised its intention to cease its marketing activities in respect of some or all of its funds in that jurisdiction through a publicly available medium, including by electronic means, which is customary for marketing AIFs and suitable for a typical AIF investor;
- any contracts the AIFM has with financial intermediaries or delegates are modified or terminated with effect from the date of de-notification; and
- the AIFM has made a public offer to repurchase all the units or shares held by the investors in the relevant Member State—this condition does not apply to closed-ended AIFs or European Long-term Investment Funds (ELTIFs).
For 36 months after such de-notification, the AIFM will not be able to engage in any further pre-marketing of the relevant units or shares or of any ‘similar investment strategies or investment ideas’ in the relevant Member State.
Even after de-notification the AIFM must nonetheless continue to provide investor transparency information (eg periodic reports) on an ongoing basis to investors.
Tim Lewis is a partner and head of Travers Smith’s Financial Services and Markets Department.
Jane Tuckley is a partner in Travers Smith’s Financial Services and Markets Department.
Phil Bartram is a partner in Travers Smith’s Financial Services and Markets Department.
Stephanie Biggs is a partner in Travers Smith’s Financial Services and Markets Department.
Sam Kay is a partner and head of Travers Smith’s Investment Funds Department.
Aaron Stocks is a partner and head of Travers Smith’s Listed Funds Practice.
Jeremy Elmore is a partner in Travers Smith’s Investment Funds department.
Will Normand is a partner in Travers Smith’s Investment Funds department.