Marketing and Pre-Marketing – Introduction

• Overview

• The meaning of “marketing”

• The meaning of “pre-marketing”

• Marketing to retail investors in the EU

• Marketing to retail investors in the UK
• Sub-threshold AIFMs
• EuVECA and EuSEF regime
• UK guidance on marketing under AIFMD
• AIFMD II

Overview

There are two methods for marketing to professional investors under AIFMD: (i) the marketing passport; and (ii) Member States’ National Private Placement Regimes (NPPR). Whether a particular marketing method is available depends on the jurisdiction of the AIFM and the relevant AIF:

• The marketing passport is currently only available for EU AIFMs marketing EU AIFs. See the “Marketing – Passport” page for more information.
• Any other combinations of EU / non-EU AIFMs and EU / non-EU AIFs must rely on the NPPR(s) in each EU Member State the AIFM wishes to market into (noting that NPPRs are not available in all EU Member States). See the “Marketing – Private Placement” page for more information.

We discuss how this translates for the UK following its exit from the EU on the “AIFMD in the UK after Brexit” page.

The meaning of “marketing”

One of the main criticisms of the AIFMD marketing framework as it was originally enacted has been the differing interpretations of the term “marketing” across Member States. 

AIFMD defines “marketing” as “a direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the Union”.

The UK and Luxembourg interpret the marketing concept as applying at a relatively late stage (i.e., when the offer of interests in an AIF is capable of being accepted by investors on final form subscription documents), while in other countries, AIFMD marketing activity was interpreted as taking place much earlier. This created a catch-22 situation for managers of certain private funds – typically, before establishing and finalising the terms of such funds, managers will want to pre-market in order to assess whether there is demand for the relevant products and to discuss and test some of the terms. However, it is impractical or impossible to approach investors to assess demand in a country that regards these initial discussions as “marketing”, requiring the fund to be established and largely fully documented.

In order to address this issue, in 2019 the EU introduced the CBDF package of reforms. Linklaters clients can access a recording of our Asset Management Spotlight webinar on the CBDF package held in March 2021. We also have a note on CBDF available here.

The meaning of “pre-marketing”

One of the changes made by CBDF was the introduction of a new harmonised pre-marketing regime into AIFMD. The pre-marketing rules were required to be implemented in EU Member States by 2 August 2021.

The CBDF Directive defines “pre-marketing” as the “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… 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… 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”.

The CBDF Directive inserted a new Article 30a in AIFMD that sets out certain conditions for any pre-marketing by an EU AIFM marketing under a passport. These are described in detail on the “Marketing – Passport” page.

Although the rules explicitly only apply to marketing AIFs under a passport, a recital in the CBDF Directive notes that national rules cannot in any way disadvantage EU AIFMs vis-à-vis non-EU AIFMs. Therefore, some EU Member States may apply similar pre-marketing rules under their NPPRs.

Marketing to retail investors in the EU

Each Member State may allow EU and non-EU AIFMs to market AIFs to retail investors in its territory irrespective of whether the AIF is marketed on a domestic or cross-border basis or where it is established. However, in such cases, the Member State may impose stricter or additional requirements on such marketing (as compared to the requirements applicable to professional investors in their territory) but may not impose stricter requirements on the marketing of an EU AIF to retail investors on a cross-border basis than for an AIF marketed to retail investors domestically.

Member States are required to notify the European Commission and ESMA of the types of AIF which an AIFM may market to retail investors in their territory and any additional requirements that the Member State imposes on the AIFMs.

Marketing to retail investors in the UK

For those non-UK AIFMs wishing to market AIFs to retail investors in the UK, a limited offering to certain restricted categories of retail may be possible based on the private placement exemptions, however for a broad offering to all retail investors, additional rules apply under which the AIF will need to be assessed as equivalent to a relevant UK retail fund and an application will need to be made to the FCA for approval/recognition.

One-off equivalence assessments and applications can be made under a process set out in section 272 FSMA, however the UK has also implemented a new fast-track process to recognise certain types of funds, known as the overseas funds regime (“OFR”). The OFR applies to funds which are subject to specific regulatory frameworks and are established in jurisdictions that have been recognised by HM Treasury as having equivalence to the UK. As at the time of writing, only EEA UCITS funds have been assessed to be equivalent to UK UCITS (except those which are money market funds). The FCA page for the OFR is here.

Sub-threshold AIFMs

EU AIFMs managing AIFs below the thresholds in Article 3(2) of AIFMD (which are referred to as small AIFMs, registered AIFMs or other terms, depending on jurisdiction and their status) are not subject to the full compliance with AIFMD unless they choose to opt-in. See the “Authorisation Requirements” page for more information.

Unless they opt-in, such AIFMs cannot avail themselves of a pan-European marketing passport in relation to the EU AIFs they manage. Therefore, to determine whether they can market AIFs into another EU Member State, they will need to consider the national law in such EU Member State.

Subject to fulfilling the relevant requirements, such sub-threshold AIFMs may be able to access a pan-European passport under the EuVECA Regulation or the EuSEF Regulation (see below for further detail).

EuVECA and EuSEF regime

As indicated above, even if otherwise eligible for this mode of marketing, sub-threshold AIFMs cannot avail themselves of the pan-European marketing passport unless they subject themselves fully to all the requirements of AIFMD. The ability for sub-threshold AIFMs to stay outside the majority of the provisions of AIFMD in the first place was a recognition by the European officials that such AIFMs will often simply not have the resources necessary to put in place all the various policies and procedures required by AIFMD. In order not to create unduly high barriers to marketing for such funds undermining the benefits of AIFMD light regulation, the EU introduced separate pan-European marketing passports for European venture capital funds under the EuVECA Regulation and European social entrepreneurship funds under the EuSEF Regulation.

UK guidance on marketing under AIFMD

The FCA has issued helpful guidance on the UK’s interpretation of AIFMD marketing in the Perimeter Guidance Manual (PERG) 8.37. The guidance covers a range of topics, including: 

• How is “marketing” interpreted in the UK: AIFMD’s definition of marketing, which refers to an AIFM making a “direct or indirect offering or placement of units or shares…” has been implemented in the UK, however the terms “offering” or “placement” are not expressly defined in the UK Regulation. They have, however, been interpreted as taking place when a person seeks to raise capital by making a unit or a share of an AIF available for purchase by a potential investor (e.g. situations which constitute a contractual offer that can be accepted by a potential investor, such as supplying the investor with final documents and subscription materials).

• Marketing using draft documents: communications with investors relating to draft documentation (e.g. promotional presentations, pathfinder prospectuses or draft transaction documents) would not constitute an offer or placement under the UK Regulation.

NB: although the CBDF package does not apply in the UK, given the above interpretation, pre-marketing is possible in the UK subject to compliance with financial promotion rules.

• Reverse solicitation: the UK Regulation does not apply to an offering or placement of units or shares of an AIF to an investor made at the initiative of that investor (i.e. reverse solicitation). UK guidance provides that an AIFM should obtain a confirmation from the investor, before the offer or placement takes place, that the offering or placement was made at the investor’s initiative to evidence the reverse solicitation. However, AIFMs should only rely upon such confirmation if it is genuine and has not been obtained purely to circumvent the requirements of AIFMD. 

• Who is the investor: the “investor” is the person who makes the decision to invest in an AIF. Therefore, it is not simply a case of identifying the person that subscribes directly to an AIF. An AIFM should “look through” the person subscribing for the units or shares where the ultimate purchaser has engaged such person to subscribe to the AIF on the ultimate purchaser’s behalf (e.g. through a nominee company).

• Interaction with financial promotion rules: activities that do not constitute AIFMD marketing in the UK may still fall within the remit of the UK financial promotions regime (e.g. sending investors draft documentation or marketing presentations).