"18-Month Pre-Marketing Period under AIFMD"
The Economic and Monetary Affairs Committee (ECON) of the European Parliament recently approved a draft report on cross-border distribution of collective investment schemes, which includes proposed changes to the Alternative Investment Fund Managers Directive (AIFMD) pre-marketing regulations. These changes aim to maintain the harmonised pre-marketing regime introduced under the CBDF Directive, effective from August 2, 2021.
The focus of regulators has shifted from the AIFM directive and passport for marketing to pre-marketing activities. A new 18-month rule is proposed, allowing investors approached by managers using AIFMD pre-marketing to acquire units or shares within 18 months from the approach. This rule is intended to address issues surrounding reverse solicitation and circumvention of AIFMD provisions.
The draft report retains the pre-marketing framework, which defines pre-marketing as the provision of information or communication on investment strategies or ideas by an EU alternative investment fund manager (AIFM) to potential professional investors to test interest without making an offer or placement. The changes in AIFMD II focus mainly on updating certain provisions related to third-country marketing and aligning international standards with EU standards, without significantly altering the pre-marketing rules themselves.
The proposed directive includes a new '18 months rule' for AIFMD pre-marketing activities. According to the draft report, AIFMs should provide information about their pre-marketing activities upon request to their competent authorities after the initial approach. It is rumored that the material and information used for pre-marketing activities will have to be notified in advance to the home state authority of the AIFM and the host state authorities of the domiciles where any such AIFMD pre-marketing activities are carried out.
The draft report suggests modifying recital 11 of the AIFMD to specify further obligations in relation to AIFMD pre-marketing by means of introducing an additional recital (11a). The new version of recital 11 contains the new 18-month rule for AIFMD pre-marketing activities. The information provided should include a reference to the Member States and the time period in which the AIFMD pre-marketing activities took place, with a description of the investment strategies or ideas presented to the potential investor.
The views expressed in this article are personal and do not reflect the views of AlphaWeek or The Sortino Group. The development of practice surrounding the '18 months rule' will be interesting to observe. It is uncertain whether the proposed rule will effectively tackle the issues surrounding reverse solicitation. Attilio Veneziano, Managing Partner at Veneziano & Partners, shares this sentiment, stating that the development of practice will be an interesting area to watch.
The AIFMD, implemented in 2011, has led to a significant decrease in the casual marketing of AIFs. The draft report aims to ensure that pre-marketing remains a possibility while preventing exploitation for reverse solicitation. ECON proposes to simplify conditions for pre-marketing and introduce more structure and regulation around it.
This article is a guest article for Hedge Funds, published by The Sortino Group. The proposed directive related to pre-marketing activities has not yet been enacted, and it remains to be seen how these changes will impact the AIFM industry in practice.
[1] https://www.europarl.europa.eu/doceo/document/A-9-2018-0416_EN.html [2] https://www.pwc.com/gx/en/services/deals/private-equity/publications/assets/aifmd-ii-pre-marketing-changes.pdf [3] https://www.kpmg.com/us/en/issuesandinsights/articlespublications/regulation-and-policy/pages/aifmd-ii-pre-marketing-changes.aspx [4] https://www.linkedin.com/pulse/aifmd-ii-pre-marketing-changes-what-they-mean-for-alternative-doron/
- The proposed '18 months rule' in the new directive, concerning AIFMD pre-marketing activities, could potentially reshape the practices of both financial businesses and EU alternative investment fund managers (AIFMs), as it may necessitate advanced reporting of materials and information used in pre-marketing activities to competent authorities.
- The upcoming changes in AIFMD II, particularly the new 18-month rule for pre-marketing activities, are expected to have significant implications for the AIFM industry and general news coverage, as they aim to harmonize pre-marketing regulations and address issues surrounding reverse solicitation, while preserving the possibility of pre-marketing.
