The European Commission is proposing to amend the Alternative Investment Fund Managers Directive 2011/61 (“AIFMD”) to provide clarity around the issue of what constitutes “pre-marketing” activity. This issue has generated much controversy over the past years, and alternative investment fund managers (“AIFMs”) will no doubt welcome increased clarity on this issue.
The proposed amendments are set out in a proposal for a Directive amending the UCITS Directive 2009/65 and AIFMD with regard to the cross-border distribution of collective investment funds, which also contains a number of other proposed amendments. In addition, the Commission has published a related proposal for a Regulation on facilitating cross-border distribution of collective investment funds. Both the proposals comprise part of a legislative pack which is intended to contribute to the completion of the European Commission’s Capital Market Union project (see our related briefing here).
Marketing under AIFMD
AIFMD imposes restrictions on an AIFM marketing an alternative investment fund (“AIF”). In particular, an EU AIFM must notify its home state regulator when it intends to market an EU AIF either in the AIFM’s home member state or in another member state and provide it with specified documentation.
Although AIFMD defines the term “marketing”, member states have taken diverging approaches to this definition. In particular some member states regard any initial contact with a prospective investor as “marketing” where others allow a certain degree of pre-marketing contact before AIFMD is considered to be triggered. This uncertainty means that an AIFM that wishes to determine investor interest in an AIF before it comes into existence will be allowed do so without triggering AIFMD marketing requirements in some member states but not others.
The Proposals on Pre-Marketing Activities
The proposed Directive would amend AIFMD so as to include a new definition of “pre-marketing” and to specify the conditions under which pre-marketing can occur.
According to the proposed definition, “pre-marketing” means:
“a direct or indirect provision of information on investment strategies or investment ideas by an AIFM or on its behalf to professional investors domiciled or registered in the Union in order to test their interest in an AIF which is not yet established.”
Member states must allow an authorised EU AIFM to engage in pre-marketing activity in the EU, unless the activity:
- relates to, or contains a reference to, an established AIF;
- enables investors to commit to acquiring units or shares of a particular AIF
- amounts to a prospectus, constitutional documents of a not-yet-established AIF, offering documents, subscription forms or similar documents whether in a draft or a final form allowing investors to take an investment decision.
Member states must ensure that an EU AIFM engaging in pre-marketing activities is not required to notify the competent authorities of those activities.
Where a professional investor subscribes to units or shares of an AIF established following pre-marketing activity, this will be considered the result of marketing. This will also be the case where the professional investor subscribes to units or shares of AIFs managed or marketed by the EU AIFM that had engaged in pre-marketing of a not-yet-established AIF with similar features.
In addition to the issue of pre-marketing, the proposed Directive will also amend AIFMD so as to:
- specify the procedures and conditions for AIFMs who wish to discontinue their marketing activities in a particular member state; and
- require an AIFM which is permitted by a member state to market units or shares of AIFs to retail investors, to make local facilities available to those investors to serve situations such as making subscriptions, making payments or repurchasing or redeeming units. For this purpose AIFMs will not be required to maintain a physical presence in the relevant member state, but may rely on electronic or other means of distance communication.
Comment and Next Steps
These proposals should if adopted lead to increased convergence in the approach to pre-marketing on the part of the various member states. To the extent that some member states do not have a pre-marketing regime, this proposal is likely to be welcomed. However, it may create difficulties in other member states which currently take a more expansive approach on the issue of pre-marketing.
The European Commission has called on the co-legislators to adopt its proposed measures by mid-2019 at the latest. Once the Directive enters into force, member states will have 24 months in which to transpose it into national law.