The Pre-Marketing Regime for AIFs

With Luxembourg and Ireland implementing the cross-border distribution directive last week, we thought it would be useful to provide an updated overview of the new pre-marketing regime for AIFs.

On 2 August 2021, Directive (EU) 2019/1160 with regard to cross-border distribution of collective investment undertakings (the “Directive”) came into force in many EU jurisdictions (some additional EU member states have also implemented the directive since then and more will implement the Directive over the coming weeks and months).  For additional information on the implementation progress of the Directive in EU Member States, download our implementation tracker guide.

One of the important changes introduced by the Directive is the new harmonised pre-marketing regime for AIFs across the EU. Below is a summary of the new regime.

What is the new pre-marketing regime?

The previous rules on pre-marketing of AIFs (where permitted) varied between the EU Member States. The Directive harmonises the definition of pre-marketing under AIFMD and the process under which EU AIFMs can engage in pre-marketing. This will enable EU AIFMs to test the waters before establishing an AIF or registering an AIF for marketing in certain EU member states.

The Directive defines pre-marketing of AIFs 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 domiciled or with a registered office in the European Union in order to test their interest in an AIF or a compartment which is not yet established, or which is established, but not yet notified for marketing in accordance with Article 31 or 32, in that Member State where the potential investors are domiciled or have their registered office, and which in each case does not amount to an offer or placement to the potential investor to invest in the units or shares of that AIF or compartment“.

EU AIFMs will have to ensure that the information they present to potential investors does not:

• Enable investors to commit to acquiring units or shares of a particular AIF;
• Amount to a subscription form or similar document (whether in draft or final form); or
• Amount to a final form constitutional document, prospectus or offering document of a not-yet-established AIF.

A draft prospectus (or offering document provided) to a potential investor must avoid containing “sufficient information to allow investors to make an investment decision” and must clearly state that (a) the document does not constitute an offer or an invitation to subscribe to units or shares of an AIF and (b) the information presented in those documents should not be relied upon because it is incomplete and may be subject to change.

Within 18 months of the AIFM starting to pre-market AIFs, professional investors approached via pre-marketing who would like to subscribe for units or shares in a pre-marketed AIF can only do so if the AIF is registered under the notification procedures under Article 31 or Article 32 AIFMD (meaning that reverse solicitation can no longer serve as a basis for subscription in the AIF within those 18 months).

Who does this regime apply to?

The regime applies to authorised EU AIFMs (or authorised entities who will carry out the pre-marketing on their behalf) in respect of an AIF (to potential professional investors) which is either

• Not yet established; or
• Established but not yet notified for marketing in that Member State.

The following authorised entities may engage in pre-marketing on behalf of an authorised EU AIFM:

• An investment firm under the MiFID II,
• A credit institution under the Credit Institutions Directive,
• A UCITS management company under the UCITS Directive,
• An AIFM in accordance with AIFMD, or
• Tied agents of MiFID entities with the relevant permissions.

The harmonised regime does not apply to sub-threshold AIFMs and UCITS.

Although the new rules apply to EU AIFMs of EU AIFs, some Member States have also extended (or intend to) the new pre-marketing regime to non-EU AIFMs (including UK and US) in relation to the marketing of their non-EU AIFs under national private placement regimes (“NPPRs“) under Article 42 of AIFMD.

How do I apply for pre-marketing?

Within two weeks of starting pre-marketing an AIF, an AIFM would have to send its Home State regulator an informal letter or completed form containing details of:

• The Member States and periods of time in which the pre-marketing is taking, or has taken, place,
• A brief description of the pre-marketing (including the information on the investment strategies presented) and, where relevant
• A list of the AIFs and compartments of AIFs being pre-marketed.

The process for notification is a regulator vis-à-vis regulator process. The Home State regulator would then update the relevant Host State regulators in which pre-marketing is taking, or has taken, place.

Items to consider if wishing to use the new regime.

• The most important point to monitor is the varied implementation dates across the various EU Member States. It will also be important to analyse the actual implementation of the Directive.
• If you are a non-EU AIFM, you would need to analyse each EU member states implementation to understand if the pre-marketing regime has been extended to non-EU-AIFMs.
• AIFMs that want to use the pre-marketing regime, will find it difficult to rely on reverse solicitation.
  • Where a pre-marketing notification has been filed, any subscription made in the next 18 months will be deemed to derive from pre-marketing activities.
  • Relying on reverse solicitation will therefore not be possible for 18 months from the date of the commencement of pre-marketing.
• AIFMs should review their current distribution arrangements and agreements to ensure that only authorised entities engage in pre-marketing on their behalf.
• AIFMs will need to ensure proper coordination between sales teams and the legal and compliance departments. Legal and compliance teams will need to receive in a timely manner relevant information about any pre-marketing activities that have been initiated (or are intended) such as a list of target countries, details of the AIFs (or yet to be established AIFs) and any material being shared with potential investors.

For additional guidance on this matter or assistance in the notification process and/or the review of pre-marketing documents, please contact our team of legal and regulatory experts.