The Unbearable Lightness of AIFMD Premarketing Rules
Nearly one year since the introduction of the Crossborder Distribution Directive and the dust seems to have finally settled around the new rules on AIFMD Premarketing. Or that is what it seems at least for European managers. The situation is different on the other side of the Atlantic, where the concept of AIFMD premarketing – where known to local managers – is definitively not entirely clear yet. A general less defined understanding of what the AIFMD premarketing rules are, how these relate to reverse solicitation, and what to do with them in a broader marketing plan encompassing also European investors seems to be still the norm for non-EU managers.
Considering that AIFMD premarketing rules are there and cannot be ignored, there are nevertheless, as we will see, different ways their existence can be dealt with.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with AIFMD Premarketing Rules.
The Why of the AIFMD premarketing rules
Amongst others in the industry, we have already discussed at length the AIFMD premarketing rules at the time when these entered into force and how these might have in part a Brexit-related political flavour to them. We probably never mentioned though – as much as we believe it worthy to do so -that whilst in one of the earliest drafts of the Crossborder Distribution directive the concept of premarketing was initially envisaged to be applicable also to UCITS funds, it was indeed decided that these would be applicable only to AIFs and their managers in the final version of the directive.
Without entering into the greater details of the debate surrounding the applicability of the AIFMD premarketing notification also to foreign non-EU AIFs and their AIFMs, which is indeed what the Crossborder distribution directive states and what some European domiciles have already implemented, we wanted to reinstate how the AIFMD premarketing rules are more of a concern for these non-EU AIFs and their AIFMs, as it impacts on the ability to claim a reverse solicitation for a period of 18 months since the beginning of the premarketing activities. EU AIFs and AIFMs have indeed the ability to passport their AIFs across Europe very easily, making reverse solicitation the least of the concerns in our view. On this note, for these EU managers, the obligation to make a notification under the AIFMD premarketing rules does not really alter significantly the broader picture of their European distribution endeavours and should really be considered in all the cases where the issue is testing a strategy with investors before considering to launch an AIF or not.
The introduction of the AIFMD premarketing rules in our view has also some less apparent, but no less important, consequences as these affect significantly the traditional way that managers approached potential investors with their ideas, strategies, and products. They also mark the beginning of an era of higher sophistication, at least in Europe, for what concerns the discussions surrounding reverse solicitation.
Interpretation of the AIFMD premarketing rules in Germany
The old adage passed on for decades now, according to which a manager can safely talk about his/her firm and strategies, without incurring any requirement for notifications to local national competent authorities, no longer holds true. That is to the dismay of the traditional school of thought on crossborder distribution. Talks about strategies, if you will, and at least on paper, are caught by the requirement of a premarketing notification now recently introduced.
Of course, many saw the premarketing notification as a new business opportunity in a way, in that it is always a safe practice to prepare and submit these notifications. We don’t disagree and we believe that it is a must now for EU AIFMs and their AIFs. For what concerns non-EU AIFs and their managers, the AIFMD premarketing notification can pose some additional challenges instead. Above all, we are concerned with the actual ability of the non-EU AIFM to have its non-EU AIFs authorised for marketing under the NPPR in a specific domicile as a consequence of the marketing fiction that such notification of premarketing creates. If nothing else, we have to note that one of the unintended consequences of these rules is also to significantly restrict the scope of the European endeavours of certain managers.
However, in our view, where the AIFMD premarketing rules have significantly restricted the scope of reverse solicitation, they have, conversely, also helped clarify the concept. On this specific point, we make reference to a recent consultation from the German regulator, which, in an exercise of exquisite sophistication on the topic, attempts to define even further the perimeter of reverse solicitation, stating that whatever is not distribution nor premarketing can then be considered as a reverse solicitation. And where talking about a strategy now qualifies under premarketing, the question remains as to how to articulate the message and what can be said or not in order for it to be classified as a reverse solicitation.
Conclusions
Whilst our approach to reverse solicitation remains unchanged, whereby by definition reverse solicitation fits awkwardly with a systematic plan underpinning an exercise of market penetration, we see that there remain instances where reverse solicitation can be claimed successfully. Our view remains the same also for what concerns the fact that where multiple investors subscribe to an investment strategy, it is very hard to purport that reverse solicitation can be claimed successfully.
This said, we strongly believe that going forward, in the isolated cases where reverse solicitation could be claimed in Europe, the success of such a claim presupposes a radical change in the way the message is sent across to audiences and entails getting rid of certain beliefs now clearly outdated.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with AIFMD Premarketing Rules.