Part I: Small fund managers marketing into the UK
Many non-EU fund managers raising a non-EU alternative investment fund will accept a European investor on a "reverse solicitation" basis; but they won't "market" into Europe. This is often because the cost of complying with the AIFMD is expected to be disproportionately high, when compared to the value of the investments they might receive. But sometimes, the cost of compliance is surprisingly low. And sometimes, whilst it's high, there are "hidden benefits" that make it all worthwhile.
We've prepared a series of Client Alerts, which explore these issues. This one is focussed on the "AIFMD-lite" regime for "small" non-EU fund managers, when they're raising a non-EU fund and their potential investors have their registered offices in the UK.
The AIFMD-lite regime for small fund managers
If you are a "small" alternative investment fund manager (AIFM); and you want to "market" interests in an alternative investment fund (AIF) to non-retail investors in the EU; the AIFMD will barely apply to you.
Are you a "small" fund manager?
You're a small AIFM if you "directly or indirectly … manage portfolios of [AIFs] whose assets under management … in total do not exceed":
- €500 million – if the AIFs are unleveraged, and do not include redemption rights that are exercisable in the first 5 years after the first investment in each fund is made; or
- €100 million.
Do you want to "market" to non-retail investors with a registered office in the EU?
You'll be "marketing" if you make "a direct or indirect offering or placement … of [interests in an AIF] to … investors domiciled or with a registered office in the" EU.
You'll also be "marketing" if someone does any of these things on your behalf.
Different countries apply this in different ways. In some, there's no "marketing" unless and until there's a PPM and subscription booklet that are capable of supporting a firm offer to invest. In others, "marketing" begins if you approach a potential investor. If it might even begin if (a) your website is capable of being read in the relevant country and it's in the official language of that country; or (b) you respond inappropriately to a potential investor's requests for information about you and/or your funds.
How to comply with AIFMD-lite – potential investors in the UK
Before you begin marketing to non-retail investors in the UK, you must: (a) fill in a short form; and (b) e-mail it to the FCA. When you've done that, you'll have a right to market into the UK, unless and until the FCA revokes that right – which is rare.
You will also need to:
- Comply with the UK's Financial Promotions rules – this usually means including an appropriate set of legends in your PPM and/or subscription booklet, but that's all;
- Pay some modest fees: (a) a notice fee of £125 will be due a few weeks after you send your form to the FCA; and (b) (if your marketing goes on for long enough, or you accept a UK investment) an annual fee of £350;
- Submit an annual report to the FCA, which is unlikely to be difficult or expensive to prepare. This means filling in a standard reporting template (most of which does not apply to you), to tell the FCA about:
- The main instruments in which you trade;
- The main exposures of your funds;
- The most important concentrations of your funds.
The FCA is entitled to ask for more information, and more frequent reports, if it is necessary or desirable to do this, so that it can monitor systemic risk – but it's unlikely to ask "small" fund managers for very much (if it asks for anything at all);
- Tell the FCA if you become too big to be a "small" fund manager any more - if that happens you'll need to prepare and submit an appropriate application to the FCA within 30 days; and
- Er. That's it.
The annual fee will be due, and the obligations in (3) and (4) will continue until (a) it's clear that you've stopped marketing your fund into the UK, and no investments have been / will be received; or (b) (if later) the last UK investor leaves the relevant fund.
Not so bad, after all!?