On 12 March 2018, the European Commission published a proposed directive and a proposed regulation amending the AIFMD and UCITS IV to facilitate cross-border marketing of funds. Importantly, these proposals cover pre-marketing under AIFMD which is an area managers typically ask about.

Directive

- Planned to be adopted in May 2019 and implemented in May 2021 - Proposals include:

  • a definition of “pre-marketing”: broadly providing information to professional investors before the fund (AIF) is established; and
  • pre-marketing by an EU AIFM must be allowed by Member States as long as it does not relate to or refer to an established fund (see further below).

Regulation

- Planned to be adopted in May 2019 - Proposals include:

  • AIFMs will need to facilitate subscriptions and redemptions by retail investors;
  • marketing communications should present the risks and rewards of investing in AIFs and UCITS;
  • fund marketing rules must be published by national regulators and maintained centrally by ESMA;
  • verification of compliance with national provisions, if required, must be decided within 10 working days;
  • local levies, fees or charges must be proportionate to supervisory tasks carried out and published on regulators’ websites;
  • ESMA must maintain a central database on all AIFMs, UCITS management companies, AIFs and UCITS;
  • the EuVECA and EuSEF Regulations will allow managers to test investors’ appetite for opportunities or strategies through pre-marketing.

Pre-marketing under AIFMD

The AIFMD does not contain a definition of “marketing” and there is no harmonised approach in the EU. This means local regulators have taken different approaches as to what “pre-marketing” activity is permitted before a formal regulatory notification is needed under the AIFMD. For example, discussing fund strategy with potential investors before the fund is established may be allowed in certain EU states, but require regulatory notifications in other. The proposed amendments to the AIFMD are intended to solve this through a new definition of pre-marketing.

New definition of pre-marketing

The proposal sets out a new definition of "pre-marketing":

“(aea) ‘‘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.’”

New article on pre-marketing

It also states that Member States shall ensure that an authorised EU AIFM may engage in pre-marketing in the Union, “excluding where the information presented to potential professional investors:

(a) relates to an established AIF; (b) contains reference to an established AIF; (c) enables investors to commit to acquiring units or shares of a particular AIF; (d) 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.

2. Member States shall ensure that no requirement to notify the competent authorities of pre-marketing activities is necessary for an EU AIFM to engage in pre-marketing activities.”

According to the recitals, draft offering documents should not be sent to potential investors during the pre-marketing stage. This differs from current practice, for example in the UK, where draft fund terms may be sent to cornerstone investors before the fund is established, without triggering regulatory notification requirements.