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Where the Rubber Meets the Road on AIFMD Pre Marketing

By August 2021 most of Europe will implement the so-called Cross Border Distribution of Investment Funds Directive (the Directive). The reason why this is important is because of the introduction of the notion of AIFMD Pre Marketing as well as the related notification regime across Europe.

Fund managers should pay particular attention to the formalities surrounding AIFMD Pre Marketing and the implications that it will have on the existing dynamics used to approach investors with new products, the additional compliance burden as well as the related regulatory risk.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with preparing for AIFMD Pre Marketing. 
Quick Facts about AIFMD Pre Marketing Notification
Who
Applies to EU AIFMs, or entities acting on their behalf, carrying out pre marketing activities of AIFs. The notification shall be made by the AIFM to its Home Member State Authority.
Whereas 12 of the Directive states that national laws, regulations and administrative provisions, required in order to implement the harmonized rules on AIFMD Pre Marketing, should not disadvantage EU AIFMs vis-à-vis non-EU AIFMs. To date there is no practical case yet of any EU domicile that has gold-plated the Directive and introduced a notification also for pre marketing activities carried out by non-EU AIFMs across Europe. We can only speculate that this will be the case in certain European domiciles as the implementation of the Directive progresses towards the August 2021 deadline.
What
Direct or indirect information or communication to potential professional investors domiciled or with a registered office in Europe made in order to test interest in an AIF or compartment, either not yet established or established but not authorised for marketing.
Whilst authorised AIFMs may engage in AIFMD Pre Marketing activities in Europe, they will not be allowed to provide information to potential investors where:
a) The information per se allows investors to commit to purchase units or shares of an AIF.
b) The information amounts to a subscription form or similar document, whether in draft or final form.
c) The information amounts to constitutional documents, prospectus or offering documents in final form of an AIF not yet established.
In cases where a draft prospectus or offering documents are used to approach potential investors, the drafts shall not contain sufficient information so as to allow for investors to take an investment decision. Also, the draft prospectus or offering memorandum shall contain a clear disclaimer that:
i) The documentation does not constitute an offer or an invitation to subscribe to units or shares of the AIF; and
ii) The information should not be relied upon because it is incomplete and subject to change.
As part of the notification process, AIFMs shall not be required to notify the content of the information used or the investors addresses of the communications as part of the pre marketing activities.
There shall be no other formalities to be imposed on AIFMs carrying out AIFMD Pre Marketing other than the notification. However, AIFMs are required to document AIFMD Pre Marketing activities in an adequate manner.
When
Within two weeks of having commenced pre marketing activities, an AIFM shall send a notification letter to the competent authorities of its Home Member State Authority.
The notification shall contain a description of the a) member states where investors are domiciled and periods of time of the activities; b) strategies presented to potential investors and, where relevant, list of AIFs and compartments that were subject of the activities.
The notification letter does not have to have a specific format and, according to the regulation, can be sent either electronically or via mail. We want to assume that dedicated email addresses as well as formats for the notification letter may be introduced by the competent authorities of certain domiciles across Europe.
The process for notification is a regulator vis-à-vis regulator process, with the competent authorities of the Home Member State of the AIFM in charge of the notification to the competent authorities of the Host Member States where the activities are carried out. As per the Directive, the competent authorities of the Host Member States concerned, might ask additional information on the activities carried out.
Why
EU AIFMs shall ensure that EU domiciled professional investors do not acquire AIFs in the course of pre marketing activities and that, where investors contacted through the said activities do acquire the AIFs presented in the course of the activities, within 18 months from the EU AIFM having commenced the pre marketing activities, any subscription or purchase takes place only on the basis of the said AIFs having been duly authorised for marketing under AIFMD articles 31 and 32.
How to Prepare for AIFMD Pre Marketing
One of the apparent aims of the introduction of this new notion and the related rules is to curb the use of reverse solicitation. However, considering that obtaining a marketing authorisation for an EU AIF is not a very cumbersome process, one may argue that the purpose of the introduction of these rules is different. Perhaps the aim of the new rules is mainly to restrict even further the scope for non-EU AIFMs intending to offer their non-EU AIFs to European domiciled investors.
Speculations aside, the new notification process will pose some challenges to EU AIFMs carrying out pre marketing of their AIFs to investors domiciles in the EU. In first instance, there will be a need for ensuring coordination of the sales and marketing arms of a firm, with their legal or compliance departments. More coordination will be required in case any of the marketing and sales functions are outsourced. Whilst the notification per se is not ex-ante and is not required in order to commence pre marketing, it will be necessary to have a clear picture, as well as a list, of the domiciles where the activities are carried out as well as the AIFs and the material used to approach potential investors.
Interestingly, whilst on the one hand the Directive states that as part of the notification it will not be required on AIFMs to disclose the potential investors approached, on the other, the competent authorities of Host Member States can request AIFMs additional information on the activities carried out. As a practice will form on pre marketing, we will see whether and in which situations and also in which domiciles it is more likely that information on the potential investors approached might be requested.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with preparing for AIFMD Pre Marketing.

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