Considerations for pre-marketing alternative investment funds in Europe
As a US or non-EU fund manager, you may be contemplating raising capital in Europe but unfamiliar with the rules around pre-marketing an alternative investment fund.
Pre-marketing can be a useful tool for testing investor appetite before launching your fund in Europe but it is important to understand the pre-marketing considerations specific to the EU region. We recently interviewed Thomas Fahl, Head of AIFM Services at Ocorian about pre-marketing alternative funds in Europe. From rules and regulations to the process of pre-marketing, we aim to provide fund managers with the information they need to navigate the process.
What does it mean to pre-market a fund?
Pre-marketing is when you engage in marketing activities to test investor appetite for your fund before it is formally launched. This means that the fund has not been incorporated and no service agreements for domiciliation, administration and similar provisions have been signed.
Pre-marketing is restricted to activities where investors cannot make an investment in the Alternative Investment Fund (AIF).
Under the Cross Border Fund Directive (CBDF), managers will need to be careful to understand what activities constitute permissible “pre-marketing” activities. In particular, unless they are an EU AIFM, they must not provide any of the following to investors:
- Sufficient information to investors that would allow the investors to subscribe
- Subscription forms or other similar documents, whether in draft or final form
- Constitutional or offering documents in final form in relation to an AIF that has not yet been established
In some jurisdictions, pre-marketing activities may be restricted to qualified investors or professional clients, and certain disclosures may need to be made to ensure that potential investors understand the risks associated with the fund. Additionally, pre-marketing activities may be subject to review by regulatory authorities to ensure compliance with applicable rules and regulations.
Who can pre-market a fund?
Under the CBFD, only certain parties may engage in pre-marketing. These are:
- An investment firm under the MiFID II Directive.
- A credit institution under the Credit Institutions Directive.
- A UCITS management company under the UCITS Directive.
- An AIFM in accordance with the CBFD Directive.
- A tied agent in accordance with the MiFID II Directive.
If you do not have a regulated AIFM management company in Europe, you may need to use a third-party provider for pre-marketing.
How and when can you pre-market a fund?
Typically, the pre-marketing phase runs from the final close of your last fund to the launch of your current fund.
Irrespective of your regulatory status, you can build your brand during this period. You cannot discuss the details of a specific fund, rather build the profile by discussing your team, strategy, and performance across all areas of the business.
Once the data room is open, you (or your third-party AIFM) will need to either file a pre-marketing notification in the relevant jurisdictions. This way, managers can officially ascertain appetite from European investors and work out where they want to register to the fund once moving into full marketing mode.
What are the rules around pre-marketing a fund?
The cross-border directive applies only to European managers, however, non-European managers will fall under the National Private Placement Regime. However, if you make a registration for pre-marketing and end up getting an investor from that jurisdiction, you will need to register the fund (including all fund documentation) for sale in that jurisdiction. Additionally, if you do not get any investors after 18 months and terminate your pre-marketing, you are barred from marketing that strategy or a similar strategy in that jurisdiction for 36 months.
How do you start marketing a fund?
If you have successfully engaged investors about your fund strategy during pre-marketing and have notified the regulator, you will then need to make a formal marketing notification to the local regulator that you intend to distribute the fund in that jurisdiction. This notification will require filling all the fund documentation such as prospectus, subscription forms etc. with the local regulator. More can be found on this process in our guide to marketing your fund in Europe.
How can Ocorian help pre-market alternative investment funds?
It is essential to be aware of the rules and regulations around pre-marketing, including the limitations on who can carry it out and the potential consequences of not following the guidelines.
For more information on pre-marketing, view our article What do asset managers need to know about pre-marketing alternative investment funds in Europe.
As a fully licensed AIFM, Ocorian can be appointed through a specific pre-marketing agreement to facilitate the pre-marketing of your AIF to potential LPs and other possible investors in the EU.
This ensures that when your fund project is realised, all pre-marketing activity has been captured and your fund will be filed for full marketing authorisation in due course. Combined with our fund administration and AIF depositary capabilities, we are able to provide a true end-to-end solution to help fund initiators realise their investment strategies.
Get in touch with our AIFM services team below to discuss how we can support your fund's success.