Regulation (EU) 2019/1156 and Directive 2019/1160 have introduced new rules for the cross-border marketing and distribution of Alternative Investment Funds (“AIFs”) within the EU. The majority of these rules will take effect from 2 August 2021. The new rules aim to harmonise current national regulatory approaches in the context of pre-marketing whilst bringing improved cost efficiencies and transparency. Currently, there is no uniform approach across EU Member States regarding pre-marketing.
New Definition of Pre-Marketing Across EU
The Directive will amend AIFMD and bring uniformity to the definition of ‘pre-marketing’ and will set out the conditions allowing for such pre-marketing activities for EU AIFMs. Currently, the definition of pre-marketing varies across EU Member States as it is an activity that is not regulated under AIFMD nor have ESMA or the EU published guidance defining the area. In order to meet the definition of pre-marketing the following conditions will apply from August 2nd:
- there must be a provision of information (whether direct or indirect) on investment strategies or investment ideas by an EU AIFM or on its behalf;
- to professional investors in the EU;
- to test the investors’ interest in an AIF that has either:
- not been established as yet; or
- is established, but has not yet been notified for marketing to the relevant EU Member State regulator; and
- the provision of information must not amount to an offer or placement to the investor in the AIF.
Conditions for Pre-Marketing in the Union by an EU AIFM
An authorised EU AIFM may engage in “pre-marketing” except where the information presented to potential professional investors:
- is sufficient to allow investors to commit to acquiring units or shares of a particular AIF;
- amounts to subscription forms or similar documents (whether in a draft or a final form); or
- amounts to constitutional documents, a prospectus or offering documents of a not-yet-established AIF in a final form.
The new rules further provide that where a draft prospectus or offering documents are provided, they shall not contain information sufficient to allow investors to take an investment decision and shall clearly state that they do not constitute an offer or an invitation to subscribe to units or shares of an AIF; and that the information presented therein should not be relied upon because it is incomplete and may be subject to change.
Notification to Home-State Regulators of Pre-Marketing
An EU AIFM will be required to send an informal letter (in paper form or by electronic means), within two weeks of initiating pre-marketing, to the regulator of its home Member State.
This letter will be required to:
- specify which Member States it is or has engaged in pre-marketing
- the time periods during which the pre-marketing is taking or has taken place and including, where relevant, a list of its AIFs and compartments of AIFs which are or were the subject of pre-marketing.
In these circumstances, the regulator of the home Member State of the EU AIFM will then promptly notify the competent authorities of the Member States in which the EU AIFM is or has engaged in pre-marketing thereof.
De-registration of Marketing within a Member State
Currently, there is no uniform approach by Member States in terms of governing the discontinuance of marketing activities. The Directive harmonises the procedure and conditions for both UCITS and EU AIFs who wish to stop the marketing of their shares/units in Member States other than the home Member State of the AIFM. In order to do so, a certain number of conditions will need to be fulfilled by the EU AIFM.
Tightening of Rules on Reverse Solicitation
The new Marketing Rules provide that any subscription by professional investors to units or shares of an AIF referred to in the context of the ‘pre-marketing’ information, within 18 months of the EU AIFM having initiated the pre-marketing, will be deemed to have been as a result of marketing as defined under the Marketing Rules. It is expected that this will reduce the circumstances available for the use of reverse solicitation.
Carne will support clients impacted by these new changes and if you are considering engaging in any pre-marketing activities after 2nd August 2021 please contact your Carne relationship manager for further details.