The proposed amendments are set out in a proposal for a Directive amending the UCITS Directive 2009/65 and AIFMD with regard to the cross-border distribution of collective investment funds, which also contains a number of other proposed amendments. In addition, the EU Commission has published a related proposal for a Regulation on facilitating cross-border distribution of collective investment funds. Both the proposals comprise part of a legislative pack which is intended to contribute to the completion of the European Commission’s Capital Market Union project.
Pre-marketing (or “soft marketing”) is essentially communications with potential investors before they commit to subscribe for fund interests (e.g. units or shares). It ranges from early stage roadshow presentations and “teaser documents” in order to test investors’ interest in certain investment strategies, to providing draft fund documents to potential investors. Various types of pre-marketing activity trigger regulatory filing requirements in some, but not all, countries and there is no uniform approach across the EU.
Impact on funds and investors
Currently, the proposals only apply to EU AIFMs and AIFs, and will therefore give helpful certainty to these. But this means that the position for third country managers and AIFs remains uncertain as local regulators will still be able to determine what type of pre-marketing activity will trigger regulatory filings. Local regulators can prevent marketing and also impose additional conditions over and above the minimum AIFMD requirements.
In addition to the issue of pre-marketing, the proposed Directive will also amend AIFMD so as to:
- specify the procedures and conditions for AIFMs who wish to discontinue their marketing activities in a particular member state
- require an AIFM which is permitted by a member state to market units or shares of AIFs to retail investors. Also, to make local facilities available to those investors to serve situations such as making subscriptions, making payments or repurchasing or redeeming units. For this purpose AIFMs will not be required to maintain a physical presence in the relevant member state, but may rely on electronic or other means of distance communication.
Comment and Next Steps
These proposals should if adopted lead to increased convergence in the approach to pre-marketing on the part of the various member states. To the extent that some member states do not have a pre-marketing regime, this proposal is likely to be welcomed. However, it may create difficulties in other member states which currently take a more expansive approach on the issue of pre-marketing.
The European Commission has called on the co-legislators to adopt its proposed measures by mid-2019 at the latest. Once the Directive enters into force, member states will have 24 months in which to transpose it into national law.
The pre-marketing proposals will be important to EU AIFMs and AIFs but would have had even greater impact on the alternative fund industry if they also had applied to third country AIFMs and AIFs (which would include the UK following a potential hard Brexit). It remains to be seen if the position for third country scenarios will be influenced by these proposals. This will ultimately be up to each EU member state to decide.