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What has happened?

On 12 March 2018, the European Commission recently published a proposed Directive and a proposed Regulation amending the AIFMD and UCITS IV to facilitate cross-border marketing of funds. These proposals cover pre-marketing under AIFMD.

The documents can be seen here and here.

The Directive is planned to be adopted in May 2019 and to be implemented in May 2021, and proposals include:

• a definition of “pre-marketing”: broadly, providing information to professional investors before the fund (AIF) is established
• 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

The Regulation is planned to be adopted in May 2019, and 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 that 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 possible fund terms with potential investors before the fund is established may be allowed in certain EU states, but may require regulatory notifications in others. 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”:

‘‘’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.”

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 [or] 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”

Also, it states that “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.

How can Thistle help you?

Thistle will continue to keep this area under review and will issue further updates where necessary. Visit our investments page or contact us if you need assistance in relation to any of these issues.