On 16 April 2019, the European Parliament adopted various reforms to the rules applicable to the distribution and marketing of collective investment funds.
The reforms include amendments to the Alternative Investment Fund Managers Directive (the “AIFMD”), including harmonised rules on the pre-marketing of alternative investment funds (“AIFs”).
The amendments are to be adopted by the EU Council in due course, and full implementation is expected sometime in 2021.
Once passed, the amendments will need to be implemented into the Finnish Act on Alternative Investment Fund Managers (Laki vaihtoehtorahastojen hoitajista) in order to take effect in Finland. The amendments are unlikely to result in any significant changes to the way AIFs are marketed in Finland. However, going forward, there will be some new notification and disclaimer obligations.
The EU rules on pre-marketing will apply to managers of alternative investment funds (“AIFMs”) that are authorised under the AIDMD (i.e., sub-threshold/registered AIFMs and non-EU AIFMs are out of scope). The approach on pre-marketing by registered AIFMs and non-EU AIFMs will remain within the discretion of each EU Member State. It is, however, possible that the same rules will be applied to registered AIFMs and non-EU AIFMs on a national level.
Currently There Is No Common Concept of Pre-Marketing Between Different EU Member States
The AIFMD currently regulates ‘marketing’ of AIFs to investors, but not ‘pre-marketing’.
Pre-marketing refers to activities that test investor appetite for investing in a particular AIF. As long as the purpose of the pre-marketing is not to seek binding investment commitments, it generally does not constitute marketing and hence trigger registration requirements under the AIFMD.
However, what constitutes pre-marketing and the conditions under which it is permitted vary considerably between EU Member States. In some EU Member States, there is no concept of pre-marketing at all. The amendments seek to address this problem and harmonise the definition of pre-marketing and the conditions under which EU AIFMs can engage in pre-marketing in the EU.
A New Definition of Pre-Marketing
The amendments introduce a new definition of pre-marketing into the AIFMD.
For pre-marketing to be permitted, it should:
• be addressed to only potential professional investors;
• relate to an investment idea or investment strategy;
• be in respect of (i) an AIF which is not yet established, or (ii) an AIF that is established, but not yet notified for marketing in accordance with the AIFMD; and
• not amount to an offer or placement to the potential investor to invest in the units or shares of that AIF.
During the course of pre-marketing, it would not be possible for investors to subscribe to the units or shares of an AIF.
The New Rules Will Apply to Authorised EU AIFMs
The rules on pre-marketing will apply to marketing by (or on behalf of) authorised EU AIFMs in respect of the AIFs they manage.
The rules will not apply to small registered AIFMs or non-EU AIFMs (unless this is provided for in the national legislation) or UCITS managers.
In addition, pre-marketing will be permitted to only potential professional investors.
What Documents Can Be Provided to Potential Investors During Pre-Marketing?
If the AIF has not yet been established, potential investors can be provided draft-form offering documents, such as a prospectus or a limited partnership agreement (“LPA”), as part of the pre-marketing.
If the AIF has already been established, no draft offering documents (even in a draft form) can be shared.
Distribution of any of the following would not be permitted, but would constitute marketing:
• documentation that enables investors to commit to investing in a particular AIF; or
• subscription forms or similar documents (whether in a draft or a final form).
New Disclaimer Requirements
Where a draft-form prospectus, LPA, or other offering document is provided to a potential investor, it must clearly state that:
• the document does not constitute an offer or an invitation to subscribe to units or shares of the AIF; and
• the information presented in the document should not be relied upon because it is incomplete and may be subject to change.
The AIFM Must Notify Its Home Regulator of Pre-Marketing Activities
The AIFM must file an informal notification of pre-marketing to the home regulator of the AIFM within two weeks of the commencement of the pre-marketing.
The notice should specify in which EU Member States the AIFM is or has engaged in pre-marketing, the periods during which the pre-marketing is taking place, and the AIF which is the subject of pre-marketing. The notice does not need to state which potential investors will receive pre-marketing.
The home regulator of the EU AIFM will then inform the competent authorities of the EU Member States in which the EU AIFM is engaging in pre-marketing.
Restrictions on Reverse Solicitation During the 18-Month Period from the Start of Pre-Marketing
Pre-marketing has always been likely to preclude the AIFM from relying on reverse solicitation in respect of an investor that has been the subject of pre-marketing.
This has now been clarified, and any subscriptions by professional investors within 18 months of the EU AIFM having begun pre-marketing will be considered the result of marketing and will require a marketing notification (i.e. passporting) under Article 31 or Article 32 of the AIFMD.
It is unclear, however, if the 18-month period is intended to apply to all investors in the relevant EU Member State. If so, this would remove the possibility for the EU AIFM to rely on reverse solicitation in respect of all investors in the EU Member State where it has engaged in pre-marketing during the 18-month period.
Pre-marketing is, however, by its very nature a discreet activity, and it is possible for the investor to approach the AIFM on its own initiative without being aware of the pre-marketing activities with some other investors.
Same Rules Could Also Be Applied to Non-EU AIFMs
The amendments apply to pre-marketing by an EU AIFM (or on its behalf) ─ not by non-EU AIFMs (such as US managers and UK managers post-Brexit). Therefore, the approach to pre-marketing by non-EU AIFMs remains within the discretion of each EU Member State.
According to the recitals to the amendments, national laws implemented to comply with the new rules on pre-marketing should not, in any way, disadvantage EU AIFMs vis-à-vis non-EU AIFMs. The same definition of pre-marketing could therefore be applied to marketing by non-EU AIFMs as well. As this is a matter for each EU Member State, it is possible that a non-EU AIFM will have to file a pre-marketing notification to the relevant regulator in each EU Member State where it engages in pre-marketing.
Hannes Snellman Assists with Marketing of AIFs
The financial services regulation team at Hannes Snellman is available to discuss any questions relating to the incorporation, marketing, and registration of AIFs, and we are happy to assist you in applying for regulatory authorisations.
Counsel at Hannes Snellman