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North American fund managers focus on passporting for European fund raising

North American fund managers focus on passporting for European fund raising

03 June, 2024
Europe Funds Fund Administration AIFM Private Equity

Placement agents will be most used capital raising method over the next 18 months. Market perception and the ability to reach more investors in more countries are among the top reasons for favouring passporting, Ocorian’s study finds. 

North American fund managers plan to create European funds and then use the passport to raise funds in Europe ahead of reverse solicitation and National Private Placement Regimes (NPPR), new research* from Ocorian, a global leader in fund administration, capital markets, corporate, private client, and regulatory services shows.

More than two out of five (41%) selected passporting for fund raising in Europe going forward, Ocorian’s study with private equity, private debt, real estate, venture capital and infrastructure fund management executives in the US and Canada responsible for $1.591 trillion assets under management found.

That compares with 25% selecting NPPR and the same number opting for reverse solicitation as their preferred methods for fund raising in the study out of passporting, reverse solicitation, and NPPR [1].

The study found 61% will use placement agents to raise capital in Europe in the next 18 months with nearly half (49%) also using direct sales teams and 47% relying on third party distributors. Around 28% will use private banks.

Around 63% have used reverse solicitation in the past to raise funds in Europe while 40% have looked to passporting and 36% to NPPR with one in eight (12%) using all three methods.

When asked to rank what makes passporting most attractive 56% chose market perception and the ability to reach more investors in more countries among their top three reasons while 44% ranked efficiency as a key attribute.

The same question on NPPR found 70% citing cost effectiveness and 64% flexibility as being among the top two reasons for using it while 69% said the amount of capital they have raised from European investors through reverse solicitation has increased in the past two years.

The research found 82% of North American fund managers are likely to increase pre-marketing activity in Europe over the next two years with 73% saying it is much more or more attractive to pre-market in Europe due to the lower initial investment before fully setting up.

However, the study found varying levels of understanding of pre-marketing changes made in Europe in June 2021 which included specific changes to the cross-border distribution of collective investment funds under AIFMD and UCITS Directives in the EU. Just 38% said they understood them very well while 58% said they understood the changes quite well.

Paul Spendiff, Head of Business Development – Fund Services at Ocorian, said: “There is a strong appetite among North American fund managers to raise capital in Europe and a growing debate about the best methods for doing so.

“At Ocorian, we have supported a number of managers looking to test the European appetite for their strategy and proposed product via pre-marketing. It is a cost-effective way of deciding whether to launch an EU authorised AIF and using its passport to undertake distribution activities across the region.  We only see demand for this service increasing as North American managers come to the conclusion that passporting is the most attractive method of distribution going forward..”

About Ocorian Fund Services

Ocorian’s fund services team delivers operational excellence across fund administration, AIFM, depositary and accounting services to the world’s largest financial institutions along with dynamic start-up fund managers and boutique houses. It’s team of over 300 funds specialists work across all major asset classes of alternative investment funds such as private equity, real estate, infrastructure, debt and venture capital, whilst its specialist Islamic Finance team is a leading provider of Sharia-compliant investment structures.

*Ocorian commissioned independent research company PureProfile to conduct research with 100 senior executives at alternative fund managers focusing on private equity, private debt, real estate, venture capital and infrastructure in the US and Canada collectively responsible for $1.591 trillion assets under management during April 2024

[1] Passporting is where managers base their funds in Europe and use an EU approved AIFM, reverse solicitation is where an investor approaches a fund which is not specifically marketing, and NPPR allows AIF and funds based outside Europe to market to individual EU member states separately.