Ocorian, a global leader in corporate and fiduciary services, fund administration and capital markets, says more US fund managers are looking to establish fund structures in Europe, and it expects this trend to further increase.
Marc van Rijckevorsel, Head of BD for Corporate & Fund Services, Americas said:
"There's currently a lot of capital available for US fund managers from investors in other jurisdictions. Alternative assets surged in 2021, with record levels of fundraising, investment, exits, and performance across many asset classes. This is set to continue, with Preqin forecasting assets under management to grow from $13.32tn today to $23.21tn in 2026. Almost half (49 per cent) of that 2026 figure is expected to sit with private equity and venture capital, whilst Europe's alternatives market is predicted to grow at 14 per cent year-on-year to 2026.
"There is clearly strong demand for raising and investing capital. However, historically many US fund managers have focused on US investors. Yet, as the private equity and debt market has matured and more investors have entered these asset classes, there is a growing number of investors in Europe and the GCC region, who have capital to deploy and are interested in identifying specialist fund managers."
Ocorian says it is seeing a growing number of US fund managers setting up fund structures in Europe. Luxembourg is the jurisdiction of choice as the largest investment fund centre in the world outside of the US. And the expectations are that Ireland will increase in popularity, following positive changes in its investment limited partnership (ILP) regime and several funds successfully having been launched.
Challenges for US fund managers
Ocorian says the challenges that arise for US fund managers relate to the regulatory perspective: US fund managers are very familiar with the SEC rulebook but once they get to Europe, they need to appreciate that they are not dealing with one market, even though AIFMD is creating a level playing field.
Ocorian says it is also important for US managers to consider how they incorporate ESG principles into their operations and investment decisions. European investors and regulators are increasingly focussed on managers' commitments to ESG, evident in the introduction of the EU's Sustainable Finance Disclosure Regulation in March 2021, with a second phase expected in early 2023.
New AIFMD regulation presents challenges for fund managers on pre-marketing rules
AIFMD introduced rules to regulate the pre-marketing of alternative investment funds on 2 August 2021. The advantage of this new pre-marketing directive is there is now guidance on how to undertake pre-marketing activities across the EU. Before it was implemented there was already market testing, but there was no clear legal framework. Any activity that could be considered as pre-marketing was not defined in the original AIFMD and was left to the rules of the individual EU member states. That has now been clarified.
For US fund managers without experience, Ocorian says there was a discrepancy between jurisdictions in the EU as to what counted as pre-marketing, and that has now been defined. US fund managers can test whether there is appetite for a fund strategy, and there is a process for doing that without having to set up a fund structure from the start. If a US fund manager intends to test an investment idea of an investment fund with European investors, they can appoint an EU-AIFM to do the pre-marketing notification to local regulators. If there is little appetite, the manager can stop pre-marketing and they are not obliged set up a fund or incur many costs. There's now more clarity about that process.
Marc van Rijckevorsel said: "The private capital environment continues to grow in popularity and large fund managers are tapping into new investor bases all the time. Most US fund managers see growing competition for capital and are looking to expand their investor bases into Europe and other regions such as the Gulf Cooperation Council (GCC) nations - both markets will continue to present compelling opportunities."
"Regulatory challenges are often an issue for US managers looking to fundraise in Europe, with managers facing different challenges in accessing investors capital and marketing their products. In Europe, US fund managers will benefit from working with the right service providers, whether those are legal advisers, placement agents or fund administrators."
As a fully licensed AIFM, Ocorian Fund Management can be appointed through a marketing agreement to facilitate the pre-marketing of a US fund manager's AIF to LPs and other possible investors in the EU and the UK. This ensures that when a client's fund project is realised, all marketing activity has been captured and regulators will be notified. Combined with Ocorian's fund administration and AIF depositary capabilities, it can provide a true end-to-end solution to help fund initiators realise their investment strategies.