New EU rules regulating the pre-marketing of private equity, credit, real estate, hedge and other alternative investment funds (AIFs) were published on 12 July. There is a two-year implementation period, meaning fund managers will have to comply with the rules from 2 August 2021.
The question of what constitutes pre-marketing – i.e. the promotional activities a fund manager can undertake with respect to a fund that falls short of “marketing” under AIFMD – is currently a matter of interpretation for each EU member state. As a result, there is no uniform position across the EU, with some countries (such as the UK) taking a flexible and open approach, while others (such as Spain) take a restrictive approach that effectively prohibits pre-marketing.
The new rules aim to deal with these divergent interpretations by imposing a new standardised definition of pre-marketing and by regulating, on a pan-European basis, what fund managers can (and cannot) do as part of their pre-marketing activities. While fund managers may welcome the introduction of a single position across all EU jurisdictions, they may in practice find the new rules to be quite limiting and to impose extra administrative burdens. For instance:
- Under the new definition, pre-marketing is limited to the provision of information on investment strategies or investment ideas. It is unclear whether this prohibits the provision of other fund-related information (e.g. the proposed terms or structure of the fund) to investors as part of the pre-marketing stage. If it does, then that will be a significant limiting factor for fund managers.
- The effect of the new rules is that it will be impossible to rely on reverse solicitation for a period of 18 months following the start of pre-marketing. The drafting of this restriction is particularly unclear with the result that it seemingly applies on an EU-wide basis, so that, for example, pre-marketing in Sweden could preclude reverse solicitation from an Italian investor during the 18-month period.
- Fund managers will need to notify their home regulator of their pre-marketing activities, within two weeks of starting to pre-market. The notification will need to include information about the investment strategies presented in the pre-marketing phase, as well as details of the funds being pre-marketed.
- Fund managers will need to ensure their pre-marketing activities are “adequately documented”. Presumably this will mean keeping a record of investors contacted during pre-marketing, the materials provided to them and – potentially – a contemporaneous record of the matters discussed (whether in person or over the phone), so as to be able to evidence to a regulator that only permitted pre-marketing information was provided.
- Finally, the rules oblige EU member states to permit fund managers that are full-scope EU AIFMs for AIFMD purposes to undertake pre-marketing. They do not, however, oblige member states to permit fund managers that are non-EU AIFMs or sub-threshold EU AIFMs to undertake pre-marketing. The extent to which those AIFMs (which could well include UK AIFMs post-Brexit) will be able to pre-market in the EU after August 2021 is therefore unclear.