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Passport to possibilities: how alternative investment funds can reach the right investors in Europe

25 May 2021

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A new regulatory regime will make marketing harder for non-EU funds. Now is the time to consider bringing in an independent management service to help you over the hurdles, say Maelle Lenaers, Luxembourg Head of Intertrust Group AIFM, and Barbara Martin, Global Commercial Director for Funds

Get ready for the new pre-marketing regime

Managers of alternative investment funds targeting EU investors must meet an important deadline this year – rules on pre-marketing and selling alternative asset funds to institutional or professional investors in the EU change in August.

Any EU-domiciled Alternative Investment Funds (AIFs) managed by an EU Alternative Investment Fund Manager (AIFM) will have to comply with the revised AIF’s pre-marketing regime from 2 August.

And while the directive does not yet cover special purpose acquisition companies (SPACs), Intertrust Group and our capital markets team is prepared for that possibility.

As an independent and authorised AIFM service provider, we help clients prepare for new procedures for pre-marketing activity to professional investors. Failing to do so could damage managers’ reputations, especially if they do not yet have a footprint in Europe.

We also handle any notifications to a member state regulator on behalf of regulated and unregulated AIFs, within two weeks of commencing pre-marketing.

According to the revised pre-marketing regime, once the regime is active, an EU AIFM will no longer be allowed to use reverse solicitation arguments for 18 months from the start of pre-marketing when it uses the pre-marketing regime.

That means professional investors subscribing for units in a fund within 18 months of it having pre-marketed will be regarded as having subscribed as a result of that marketing. This is now notifiable under the directive.

Funds face a regulatory rigmarole

Pre-marketing aside, a lot of non-core work must be handled when setting up in the EU. But complying with the whole regulatory rigmarole is crucial if a manager or placement agent wants clients to sit down with reputable investors, especially sovereign wealth funds that must comply with multiple international standards.

We can provide regulatory-compliant solutions to both EU and non-EU managers through our licences with the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg and the Central Bank of Ireland (CBI).

More and more we see the private placement model disappearing as managers and promoters prefer a single-entry point to Europe, with the fund manager providing the AIFM passport. We can take care of registration to the CSSF, listing all countries where the promoter wants to market the fund. This eliminates the need to go to each regulator individually, bringing economies of scale.

It’s a quicker route to market as the regulator has 20 business days to come back to us with comments. If they don’t, the promoter can get ready for marketing.

The alternative for non-EU funds and sponsors will be to consider a slew of complications. These include fund administration and passporting, Designated Person (DP) in compliance with CBI/ESMA requirements (CP86), economic requisite substance, Alternative Investment Fund Managers Directive (AIFMD) depositary requirements, infrastructure, employees, systems and reporting disclosure. Supervision of service providers and delegated activities to comply with the AIFMD and SFDR disclosure also need to be considered.

Let’s take passporting, a key concern for managers, especially post-Brexit. The European Commission has yet to activate the third-country passport for non-EU AIFs and non-EU AIFMs, so national private placement regimes continue to apply.

Our management service and international network provides complete registration across Europe of non-EU funds via the National Private Placement Regime (NPPR). Our team has been helping non-EU fund managers leap this hurdle, ensuring a smooth landing when selecting their gateway to Europe.

How an independent AIFM service can help

Independent AIFM services provide cost-effective, long-term outsourcing for both EU and non-EU funds. As mentioned above our service is authorised in Luxembourg and Ireland, so we can provide funds with quick and economical access to the EU market.

Without this the investment manager itself would have become authorised as an AIFM. This would entail significant investment in operational and compliance infrastructure, applying for regulatory approval, as well as risking liability and conflicts of interest. Appointing an external management service lets clients focus on core skills like capital-raising, deal sourcing and asset management.

Whether you’re based in or out of the EU, as a manager of an AIF distributed to EU professional investors, you will need a fast, cost-effective and compliant route to market under the new regime. Using a third-party management company brings you the benefits of the EU marketing passport for cross-border distribution in Europe.

Why Intertrust Group AIFM Services?

Our clients expect strong client services and bespoke solutions. So, we build our fund management business based on our expertise and maintain open dialogue with our clients. We also invest in client relations, which allows us to be real business partners.

Our services range from:

  • Set-up assistance and coordination
  • Review of fund documentation and agreements
  • Risk management
  • Issuance of risk reports and Annex IV reports
  • Portfolio management
  • Organisation of investment committees
  • Registration of EU-funds for marketing and passporting
  • Notification procedure and filing updated documentation with the home regulator
  • Complete registration across Europe of non-EU funds via the National Private Placement Regime (NPPR)
  • Designated Person (DP) in compliance with CBI/ESMA requirements (CP86)
  • Legal and compliance
  • Substance, infrastructure and experts in key EU fund hubs
  • Technology-led solution for risk and compliance management