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US fund managers and SPAC sponsors look to set up shop in Europe

12 July 2021

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Increased scrutiny from the SEC and a saturated American market are likely to push investors across the Atlantic. Cliff Pearce, our Global Head of Capital Markets, and Ashish Jaiswal, Commercial Director of Capital Markets for the Americas, tell us more

The booming popularity of Special Purpose Acquisition Companies (SPACs) listings on US exchanges has prompted the Securities and Exchange Commission (SEC) to throw its spotlight on both sponsors and target companies.

But with investors seeming ever keener to put their capital into the hands of innovative, capable managers, as Intertrust Group has previously reported, the SEC’s concerns may fuel the expected surge of SPACs activity in Europe.

SEC worries include fees, conflicts and compensation for sponsors. There have also been red flags over celebrity sponsorship and the “potential for retail participation drawn by baseless hype”. But probably the biggest potential problem emerged in an SEC SPACs update in April. This appears to suggest that under US generally accepted accounting principles (GAAP) rules, SPACs’ warrants may have to be reclassified from an equity to a liability. Warrants are seen as a deal sweetener, and when they are turned into a liability, investors could obtain a lower valuation than originally bargained for.

Deal makers can find plenty of opportunity in Europe

So it’s no wonder Intertrust Group is receiving more requests for our Alternative Investment Fund Management (AIFM), SPAC/SPV and Escrow services in Europe.

Fund managers within late-stage venture, private equity and hedge fund asset classes, alongside SPAC sponsor teams, seem increasingly to be looking to Europe for undervalued deal opportunities and to develop new investor relationships for future funds and special purpose vehicles (SPVs).

European venture capital (VC) started 2021 strongly, reaching an all-time quarterly high in Q1, according to Pitchbook. Close to €17.6bn was invested across 1,907 deals, and activity on the continent is expected to break records as the year progresses. The deal flow is there.

The UK remained Europe’s premier destination for VC deal-making despite short-term uncertainty from Brexit and Covid-19. Exits abounded in Q1, reaching an impressive €21bn thanks to SPACs and frothy global market valuations. Q1 exits surpassed 2020’s entire exit value.

How best to navigate Europe’s regulatory landscape

If a non-EU fund manager wants to start operations in Europe, what must be considered and what are the most cost-effective, expedient and compliant options?

Among the matters non-EU funds and sponsors have to consider are fund administration and passporting, Designated Person (DP) in compliance with Central Bank of Ireland (CBI)/European Securities and Markets Authority (ESMA) requirements (CP86), economic requisite substance, depositary requirements under the Alternative Investment Fund Managers Directive (AIFMD), infrastructure, employees, systems, and reporting disclosure. Supervision of service providers and delegated activities to comply with the AIFMD and SFDR disclosure also figure.

That’s a lot of ground to cover. Intertrust Group’s AIFM and international network can provide complete registration across Europe of non-EU funds via the National Private Placement Regime (NPPR).

Increasingly, even large fund managers with the resources to handle fund management in-house, are choosing an independent and authorised outsourced AIFM to handle their fund set-up and ongoing regulatory and fiscal reporting to attract the right type of investors.

Where will US managers and sponsors set up shop in Europe?

Fund managers have plenty of choice when it comes to European domicile. We can provide regulatory compliant solutions for both EU and non-EU managers because we are licensed by the CBI and the Commission de Surveillance de Secteur Financier (CSSF) in Luxembourg.

Luxembourg is a popular choice for US fund managers as it offers a flexible corporate legal system with the ability to form different classes of shares. When it comes to a SPAC-incorporation jurisdiction, Luxembourg’s attribution of specific financial and decision rights to sponsors and public investors is an advantage, according to law firm Allen & Overy. Intertrust Group has previously reported that Amsterdam and the UK are both prepping for an active SPAC market this year. However, if Amsterdam’s financial services regulator goes ahead with plans to limit new issuances, deal flow could divert to London and Luxembourg.

Ireland’s stock market has seen some movement, but doesn’t yet mirror IPO and SPAC activity in the US and other parts of Europe. Instead, Irish listed companies are being acquired and delisted through buy-outs and acquisitions.

Our AIFM and capital markets teams are keeping clients abreast of SPV regulatory developments in Europe and Asia, providing independent advice on which jurisdiction would fit their requirements and investor protections.

Why Intertrust Group?

  • Experienced European escrow team handling SPACs, TISE listing and SPV reporting
  • Authorised and independent Alternative Investment Fund Manager (AIFM) providing regulatory compliant solutions to EU and non-EU managers
  • Licensed by Central Bank of Ireland (CBI) and Commission de Surveillance de Secteur Financier (CSSF) in Luxembourg, we can ensure fund activities are compliant with AIFM Directive and SFDR
  • Expertise in all private capital asset classes
  • Specialised teams on the ground that provide risk management, portfolio management, legal matters and compliance, fully integrated fund services
  • Automated and standardised accounting, bookkeeping, financial reporting and consolidation
  • Monthly, quarterly and annual financial statements in line with relevant accounting standards (such as local GAAP, US GAAP and IFRS) in the US and in major markets
  • 24/7 IRIS client portal for your portfolio of Intertrust Group administered legal entities