Navigating EU Markets: Simplifying the Process for US Fund Managers

23rd April 2024

Selling US Funds in the EU is not nearly as complicated as it seems

Introduction

There is common misconception among US and other non-EU investment managers that selling their funds into the EU is risky or prohibitively complicated.  While this may have been partially true in the past, it is simply no longer the case.

Understanding the Misconception: Selling US Funds in the EU

Historically, due to the confusion and/or complexity of the EU, US managers used a fly-in, fly-out model where a manager would meet with prospective clients, discuss its strategies, and then look for the prospective client to ask for more information – effectively using reverse solicitation in each instance.

This type of marketing model – moderately effective at best – has never been without risk.  The marketing model operates in a grey area of the law that required record-keeping and individual fact-based analysis to confirm reverse solicitation.  Marketing strategies to induce reverse solicitation in a fund could always be seen as a circumvention of marketing and passporting rules in the EU.

However, this legacy marketing model is no longer needed nor is the corresponding worry, concern, or risk.  Due to recent changes to EU law and developments in the industry, US managers can use EU law to sell their funds, instead of avoiding it.

There are three straightforward options for US managers to gauge interest from potential EU investors and market and sell their funds.

Shifting Landscapes: Recent Changes in EU Fund Marketing Regulations

Change to the EU landscape for marketing funds (including non-EU funds) occurred gradually and can be attributed, in large part, to Brexit and the 2021 EU Cross Border Distribution rules (“CBD Rules”) which comprise of the “Cross Border Distribution Regulation” or “CBDR”, “Cross Border Distribution Directive” or “CBDD”, and local implementation of CBDD.

Embracing Clarity: The Evolution of EU Fund Marketing Strategies

Two key points highlight this overall change:

  1. EU Regulators wanted, and implemented, concrete and prescriptive rules for how managers can “Pre-Market” their strategies and funds in the EU; and
  2. Certain EU countries still wanted US and other non-EU managers to market their services directly.

Following Brexit, EU regulators began to privately, and then more publicly, denounce UK personnel from engaging in marketing activities in the EU through their EU-based affiliates.  EU regulators made it clear that all activities, such as marketing EU funds, should take place directly from the EU (i.e. where the EU regulators have full oversight).

Around the same time, the CBD Rules went into effect which specifically defined what Pre-Marketing is and created a corresponding regulatory framework for managers to gauge EU interest in their funds ahead of any passporting or registration.  As part of the CBD Rules, local countries had to implement their local rules, certain countries provided specific wording that allowed the Pre-Marketing of non-EU funds.

Seize Your Opportunity: Unlocking EU Markets for Your US Funds

By understanding the rules of Pre-Marketing, the objective of EU regulators, and analyzing existing EU countries’ local rules on private placement, US managers now have three clear paths for marketing US funds that utilize EU law, instead of trying to avoid it. The journey of selling US funds in the EU has undergone significant transformation in recent years.

US fund managers now have accessible pathways to engage with potential EU investors, leveraging the frameworks provided by EU law rather than circumventing them. By embracing these changes and staying informed about the regulatory landscape, US fund managers can confidently navigate the EU market and expand their reach with greater ease than ever before.

Ready to explore new opportunities in the EU market for your US funds?

Contact us today to learn more about how our team of cross-border specialists can help you navigate the evolving regulatory landscape and expand your investor base with confidence.

 

Author

Scott G. Parkin