Before the incorporation of the Alternative Investment Fund Managers Directive (AIFMD) into Belgian law, the marketing of units in alternative investment funds (AIFs) in Belgium was not regulated, unless it was considered to be a public offer. The Belgian Law of 19 April 2014 relating to alternative undertakings for collective investment and their managers (AIFM Law) lays down more stringent rules on marketing. Now the Financial Services and Markets Authority (FSMA) regulates and supervises the marketing of AIF units in Belgium, even if that marketing is addressed exclusively to professional investors.
For the purposes of the directive, “marketing” means “a direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the Union”. Belgium retains this wording in its AIFM Law. Marketing is a key concept within the AIFMD’s legal framework, as only “marketing” as defined in the directive is regulated. Operations that do not fall within that definition are not subject to the AIF regime.
The use of “a direct or indirect offering or placement” is one of the key elements to consider when assessing whether certain activities constitute marketing. However, as the placing on the market of AIFs is a complex process which takes some time, it is not straightforward to determine the exact point when premarketing activities become marketing activities which trigger the restrictions and requirements of the AIFM Law. It is essential that the AIF manager (AIFM), or the persons acting on that manager’s behalf, are able to determine the exact moment when their market research and approach to potential investors qualify as an offering or placement subject to the rules on marketing in the AIFM Law.
Although some EU member states have taken a broader stance and go beyond the concept of marketing in the AIFMD by determining that “marketing” covers any form of advertising and sales promotion, the general approach taken by most EU countries is that premarketing activities do not trigger any AIFMD requirements.
In Belgium, the general view is that there can only be an offering or placement in the sense used by the AIFM Law from the moment that the AIFM, or persons acting on his behalf, contact potential investors and invite them to buy or subscribe for shares or units of the AIF on the basis of final and comprehensive documents.
Such an approach is consistent with other Belgian legislation (for example, provisions governing the prospectus and the Undertakings for Collective Investment in Transferable Securities (UCITS) legislation) and makes it possible for AIFMs, or persons acting on their behalf, to assess local investors’ appetite prior to addressing all AIF concerns. Moreover, the FSMA is of the opinion that the prospective fund does not need to be notified under the AIFM Law as long as the fund has not yet been legally set up, provided all documents are clearly marked as draft and all communications are structured in such a manner to suggest that it is not a formal offer nor solicitation and provided that it is not yet possible for investors to subscribe. This means that pre-marketing communication drafted by the manager to gauge the interest of the market and potential investors without any completed documents, such as a draft private placement memorandum (PPM) or teaser documents, should not fall within the definition of marketing of AIFs.
Another approach is the “reverse solicitation”. This is where the investor approaches the manager of the AIF on his own initiative meaning that there is no overt marketing approach from the AIFM. Based on the above definition of marketing in the AIFMD, reverse solicitation would not be captured by the marketing requirements of the directive. The difficulty resides in what constitutes reverse solicitation and the interpretation by each national regulator. Some industry stakeholders see reverse solicitation as something of a slippery slope, because of the difficulty in drawing the line between what is passive and what is active marketing.
Distinguishing between “pre-marketing” and “marketing” is not always simple and varies from one country to another.
Unlike some other countries in the EU, Belgium seems to have taken the approach that pre-marketing activities generally do not trigger AIFMD requirements. An important criterion to determine the point where premarketing crosses the line into the territory of regulated marketing is whether the potential investors are approached by an AIFM with final and complete offering documents and whether it is possible for such investors to subscribe for shares or units of the fund on the basis of those documents.
Nevertheless, the concept of premarketing remains a nebulous one especially since a lack of EU-wide guidance has resulted in different approaches being taken by different EU member states. This creates difficulties for AIFMs planning their distribution strategy, as the same activity could lead to different interpretations in the various EU member states. It is therefore recommended that legal advice be taken at a very early stage in the AIF launch process in all cases where marketing is intended.