Proposal for European Commission Regarding AIFMD Pre-Marketing Activities
The European Commission has introduced a new pre-marketing concept under the AIFMD (Alternative Investment Fund Managers Directive) framework, which has significant implications for US fund managers seeking to offer their strategies to European investors.
This concept, outlined in the CBDF Directive, defines pre-marketing as the "provision of information or communication, direct or indirect, on investment strategies or investment ideas by an EU AIFM or on its behalf, to potential professional investors… in order to test their interest in an AIF or compartment not yet established or not yet notified for marketing," but which does not amount to an offer or placement[1].
The harmonised pre-marketing rules, now applicable across EU member states, enable fund managers to communicate investment ideas and strategies to potential professional investors without triggering full marketing obligations or requiring prior notification of the fund for marketing. For US managers, this means they can gauge European investors’ interest earlier and more flexibly before the formal offering process.
However, US fund managers must carefully navigate the regulatory framework in each EU Member State where they seek to pre-market or market funds. Although primarily applicable to EU AIFMs, the non-discrimination principle may lead to similar obligations for non-EU managers. Managers should verify local NPPR rules and consider whether local regulators require pre-marketing disclosures or limitations, to avoid regulatory risk.
The new pre-marketing rules provide US fund managers with a clearer and harmonized regulatory framework to test investor interest in Europe prior to formal marketing. This represents both an opportunity to access European professional investors earlier and a compliance challenge to be managed prudently.
Before any activities towards investors can be characterised as pre-marketing, the fact that fund documentation is not in final form has always played a crucial role. Information that amounts to a prospectus, constitutional documents of a not-yet-established AIF, offering documents, subscription forms, or similar documents, when shared with investors, ends pre-marketing.
The implementation of the proposal in its current form may alter substantially the way deals in the alternative investment fund ecosystem are carried out, making it more problematic in domiciles where the national private placement regime has longer gestational periods.
In March 2018, the European Commission issued proposals for a Directive and a Regulation impacting cross-border fund distribution. The proposals aim to support growth of cross-border fund distribution activities, bolster competition, and offer a more diversified product range to investors. The measures envisaged in the European Commission proposals aim at enhancing and facilitating European cross-border fund distribution, including amendments to the UCITS and AIFM directives.
The European Commission aims to provide new sources of financing to SMEs and new investment opportunities for retail savers through the Capital Markets Union. The implementation of the third-country AIFMD passport, allowing non-EU AIFMs to access European investors, has been delayed. Nevertheless, the new pre-marketing concept may alter the existing dynamics for foreign and US fund managers approaching European investors.
[1] European Commission, Proposals for a Directive and a Regulation on Facilitating Cross-Border Distribution of Collective Investment Undertakings, 2018.
- In light of the new pre-marketing concept under the AIFMD framework, US fund managers can now communicate investment strategies and ideas to European professional investors without full marketing obligations, offering an opportunity to gauge investor interest earlier and more flexibly before the formal offering process.
- Carefully navigating the regulatory framework in each EU Member State, US managers should verify local NPPR rules and consider whether local regulators require pre-marketing disclosures or limitations, to avoid potential regulatory risks and ensure compliance with the harmonized pre-marketing rules.
