Cross-Border Distribution of Collective Investments Undertakings

On 16 April 2019, the European Parliament adopted the European Commission’s initiatives to improve the efficiency of cross-border distribution of Alternative Investment Funds (AIFs) and EuVECA funds by increasing transparency and harmonising diverging national rules.

Highlights

The proposed amendments include the following highlights:

• Harmonised regime for pre-marketing of AIFs and EuVECA funds
• De-Notification of marketing activities
• Facilities for retail investors
• Regulator fees

Pre-Marketing and Reversed Solicitation

The definition of pre-marketing of AIFs, including EuVECA funds, is broadened to allow

• pre-marketing of both AIFs not yet established and established AIFs not yet notified for marketing, and
• EuVECA and AIF Managers (AIFMs) to provide potential investors draft marketing materials during pre-marketing.

Any pre-marketing document must clearly state that it does not constitute an offer to subscribe to shares of an AIF and that the presented information cannot be relied upon. The AIFM must ensure that all pre-marketing activities are adequately documented.

Within 2 weeks after commencement of pre-marketing activities, the AIFM must notify its home competent authority hereof together with information on

• the Member State(s) in which the AIFM conducts or has conducted pre-marketing
• the periods of time in which the pre-marketing took or takes place
• the AIFs or compartments of AIFs which are/were subject to pre-marketing.

The competent authority shall then notify the relevant local authorities of the pre-marketing activities.

Reverse solicitation can no longer be relied on by AIFMs if pre-marketing activities have been conducted within the last 18 months. Subscription by investors within this period will be considered to be the result of marketing and shall be subject to the applicable notification procedures.

Today, Member States permitting AIFM pre-marketing attach very different conditions for such activities. The proposed new harmonised regime for pre-marketing of AIFs aims at making it easier for AIFMs to test the interest of potential investors in new markets.

De-Notification of marketing activities

The de-notification procedure allows AIFMs to withdraw its passport notification in Member States where it has found no investor interest. Open-end funds will be required to submit a blanket offer to investors to repurchase free of any charges or deductions all shares of the AIF. After de-notification, an AIFM will, however, still be required to provide relevant disclosures to both investors who remain as well as the home competent authority.

For a period of 36 months from the de-notification date, the AIFM may not engage in pre-marketing of shares of the AIF or in respect of investment strategies og investment ideas in the Member State identified in the notification.

Facilities for Retail Investors

In each Member State where an AIFM intends to market shares of an AIF, the AIFM must make a facility available to retail investors to process subscription, payment, repurchase and redemption, information on how orders can be made, the handling of information relating to the exercise of investor rights, etc.

Regulator Fees

The fees charged by home competent authorities shall be (a) proportionate to the supervisory tasks carried out and (b) consistent with the overall cost relating to the performance of the functions of the authority.

The competent authorities shall publish and maintain up to date information on their websites listing the applicable fees and charges, and details of such fees will be maintained on a centralized ESMA database.

Our comments

While the outcome of the changes to the AIFMD will depend on the national implementation hereof, we expect the definition of pre-marketing to increase legal certainty and enable AIFMs to apply for the AIFMD or EuVECA passport later in the process. Furthermore, we expect to see reductions in host fees for AIFMs and EuVECA managers. While the new provisions will only apply to EU AIFMs and EuVECA managers with EU AIF’s, chances are that the provisions will be transposed into national private placement rules and, thus, have an impact on third country fund managers in the future as well.

Find the text on the AIFMD amendments adopted by the European Parliament here and the proposed text for the new regulation here.

Next Steps

The European Council is expected to give their consent to the approved amendments shortly.

The Member States will then have 2 years to implement the AIFMD amendments into national laws.

The amendments included in the approved regulation will enter into force on the 20^th day following that of its publication in the Official Journal of the European Union and shall apply from this date. However, the EuVECA amendments shall apply from 2 years after the date of entry into force of this regulation and, thus, follows the time line for implementation of the AIFMD amendments.