In July 2019, the so-called ‘AIFMD 2’ - Directive (EU) 2019/1160 amending Directives 2009/65/EC and 2011/61/EU with regard to cross-border distribution of collective investment undertakings (the “Directive”) entered into force. The Directive is complemented by Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings. Though for the purposes of this article, focus will be dedicated to the cross-border pre-marketing regime introduced by virtue of the Directive.
The definition of pre-marketing and the conditions under which it is permitted vary considerably between the current regimes applied in the EU Member States (“MS”). In some EU MS (including Malta), there is no concept of pre-marketing. In view of this, the Directive introduces a harmonised definition of ‘pre-marketing’ and provides for the conditions under which an EU alternative investment fund manager (“AIFM”) is permitted to pre-market AIFs. Below is a brief overview of the aforementioned conditions and the impact on reverse solicitation for marketing of AIFs:
The uniform definition of pre-marketing for AIFs and the pre-marketing regime applicable to AIFs
The definition of pre-marketing as introduced by the Directive is as follows:
“pre-marketing” means 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 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 may engage in pre-marketing in the EU but the information presented to potential professional investors must not be any of the following: (i) information that is sufficient to allow investors to commit to acquiring units or shares of a particular AIF; (ii) subscription forms; or (iii) constitutional documents, prospectus or offering documents of a not yet established AIF (subject to certain conditions).
Importantly, EU AIFMs shall ensure that investors do not acquire units or shares in an AIF through pre-marketing and that investors contacted as part of pre-marketing can only acquire units or shares in that AIF through marketing permitted under Directive 2011/61/EU (“AIFMD”).
Even though EU AIFMs are not required to notify the relevant competent authorities of the content or of the addressees of pre-marketing, before they engage in pre-marketing, EU AIFMs must send, within two weeks of the initiation of pre-marketing, an informal letter to the competent authority of its home MS. The letter which can be in both paper form or by way of electronic means, shall specify: (i) the MS in which they will engage in pre-marketing; (ii) the periods during which the pre-marketing is taking or has taken place; (iii) a brief description of inter alia the pre-marketing and the list of the AIFs which were the subject of pre-marketing. Subsequently, the home MS of the EU AIFM shall notify the competent authorities of the MS in which the EU AIFM is or was engaged in pre-marketing.
An EU AIFM shall ensure that pre-marketing is adequately documented.
Third parties such as credit institutions, investment firms and UCITS management companies may engage in pre-marketing on behalf of an authorised EU AIFM provided that, they are authorised by virtue of MiFID II for investment firms, CRD for credit institutions and UCITS Directive for UCITS management companies. These third parties are subject to the same pre-marketing conditions applicable to EU AIFMs.
The Directive has impacted reverse solicitation for marketing of AIFs. In this respect, any subscription by professional investors, within 18 months of the EU AIFM having begun pre-marketing should be considered to be the result of marketing and should be subject to the applicable notification procedures referred to in the AIFMD. Therefore, EU AIFMs are no longer permitted to rely on reverse solicitation if they have carried out pre-marketing in relation to an AIF in question within the previous 18 months.
By 2 August 2021, MS are required to adopt and publish the national laws, regulations and administrative provisions necessary to comply with the Directive. To date, the Directive has not been transposed into Maltese law.
The full text of the Directive, can be accessed through the following link: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32019L1160