23 July 2014

The Beginners Guide to AIFMD (for non-EU fund managers)

Who is caught by the Alternative Investment Fund Managers Directive (“AIFMD”)? What is a marketing passport? And how on earth do I market my African focused fund to EU investors?

These are all questions being asked by fund managers around the world. Non-EU fund managers have slightly different concerns to their European counterparts, but with many aspects of the AIFMD still being fluid, there is much consternation as to what exactly is required to market to European Investors.

The basics

Non-EU managers can only market alternative investment funds to professional investors in the EU under the applicable country’s National Private Placement Regime (“NPPR”). Both the fund and the manager are subject to certain minimum requirements.

From Q4 2015, a marketing passport may become available (depending on whether the powers that be choose to implement the passport), which means non-EU managers may be able to choose to operate under the NPPR’s or under the passport regime. Opting into the passport regime means access to European investors, but comes with a price tag, as the manager will be required to fully opt into the AIFMD (and it’s not for sissies).

From Q4 2018 the NPPRs may be switched off – which means opting into the passport regime is no longer optional.

Thank goodness it’s all nice and clear then.

Marketing – what does this mean???

You guessed it, for different jurisdictions, it means different things. The AIFMD captures any direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (“AIFM”) or on behalf of the AIFM of units or shares in an alternative investment fund that manages to or with investors domiciled or with a registered office in the EU.

Marketing means different things under different NPPR’s. The UK’s Financial Conduct Authority (FCA) has stated that marketing only occurs when the funds are available for purchase (i.e. subscription documents and fund documentation is in place). So earlier stage presentations/drafts are not “marketing” for these purposes provided that they cannot be used to invest. Other EU Member States take different approaches – for example, the position is broadly the same in Germany, whereas in Sweden there is no guidance around “premarketing” but rather a view that prior to the establishment of a fund it is not possible to market the fund. Other EU Member States take a broader approach and so may capture even preliminary discussions so it would be sensible to obtain local advice before approaching any European investors.

AIFMD restrictions on NPPR and managers

In addition to marketing according to the applicable NPPR, certain requirements under the AIFMD must be met. The AIFMD provisions on NPPR’s themselves provide that:

  • There must be regulatory co-operation agreements in place between the applicable EU regulator and the non EU regulator. For South African fund managers, the Financial Services Board has recently signed Memoranda of Understanding with 25 European Union Jurisdictions which means SA fund managers are now better placed
  • The country in which the manager and the applicable fund is established must not be listed as a non-co-operative country by the Financial Action Task Force (“FATF”) on AML and terrorist financing. So if you’re trying to raise a fund from North Korea you’re in trouble

Marketing under an applicable NPPR is not guaranteed – it is in the member state’s discretion, and some countries have more onerous requirements than others. Germany and Denmark may require formal registration before marketing can take place, whereas the UK, Netherlands and Luxembourg require only notification. Marketing in France, Italy and Spain is very difficult. The AIFM also imposes certain minimum requirements on managers marketing under the NPPR. These include:

  • Reporting to investors on an on-going basis
  • Disclosures to the regulator of the EU member states in which they wish to market
  • Compliance with ‘private equity provisions’ relating to obligations when a fund acquires a non-listed company in the EU (e.g. compliance with certain controller notifications and restrictions on asset stripping)

Seriously??!!! What are the alternatives?

Reverse solicitation

AIFMD only captures active marketing, so if EU investors contact non-EU managers on their own accord then this in not captured by the AIFMD. However the scope of what comprises reverse solicitation is unclear and different regulators take different views on his exemption… so be careful.

Again, different jurisdictions have more or less guidance about how reverse solicitation is regarded – what is clear is that “real” reverse solicitation where an investor genuinely approaches a manager will always be permitted, what is less clear is the extent to which managers can have discussions with existing investors and contacts that are known to them about a new fund without crossing the line into “marketing”.


There are transitional provisions in force in most EU member states that allow marketing without compliance with the NPPR requirements in certain circumstances, but in most cases these will expire on 22 July and so they have limited remaining value.

The EU marketing passport Potentially the marketing passport may come into force in 2015 – this depends on a decision by ESMA and the European Commission and is subject also to potential objections by the European Parliament and Council. So let’s cross fingers.

If it comes into force, then you can elect to opt into the passport, or carry on marketing under NPPR’s (which will potentially be phased out in 2018). For the passport to apply, the AIFMD requires:

  • Appropriate regulatory cooperation agreements to be in place between the relevant EU regulator(s) and each relevant non-EU state regulator
  • An OECD tax information exchange agreement to be in place

The non-EU manager must also not be based in a state that is designated as a non-cooperative country and territory by FATF on AML and terrorist financing and local law must not prevent effective supervision of the non-EU manager by the regulator in its member state of reference (MSR). A manager’s MSR is the predominant jurisdiction in which the fund manager markets or manages its alternative investment funds. If there are a number of potential MSR’s, the manager is required to submit a request to regulators who will determine between them where the non-EU manager should become authorised. Should be a nice quick process then.

What AIFMD requirements apply if I opt in for the passport?

To benefit from the AIFMD passport, the non-EU manager must:

  • Be authorised by the regulator in its MSR
  • Establish a legal representative in the MSR. This will be a contact point for investors, ESMA and EU regulators and will be responsible for ensuring the manager’s compliance with AIFMD requirements
  • Comply with the AIFMD in full unless it is impossible to so, in which case comply with local rules which meet equivalence tests instead

Given the fairly intrusive additional degree of regulation this would bring it seems unlikely to us that many will wish to “opt-in” just in order to obtain the benefit of the marketing passport – though much depends on how the NPPR’s develop in the period up to 2015.

And then what?

From 2018 NPPR’s might be switched off, in which case non-EU manages will be required to opt in to the passport.

However, if you are still in doubt regarding AIFMD, please give us a call.

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