European Union: The European Dilemma

Last Updated: 22 May 2016
Article by John D’Agostino

Originally published in Marcum's newsletter, Private Investment Forum, Spring 2016.

You may think this title is a reflection on the substance of the article; namely, observations on how non-EU funds approach raising capital in Europe. It is not.

Actually, this title refers to the goals of this writer. How do you approach a topic that has been covered ad nauseaum in a manner that informs and provokes thought? How do you cover a topic that is still misunderstood but for which boredom has set in?

Perhaps the best way is to address the key talking points that appear as elephants in the room; that is, the main talking points that are circulating about marketing in the European Union (or more precisely, the European Economic Association, or EEA) and seeing how closely they tie into reality.

Talking Point One:

Marketing in the EU is incredibly complex, and you will probably make a mistake if you try.

Reality: It's true that the Alternative Investment Fund Managers Directive (AIFMD) and related Markets in Financial Instruments Directive (MIFD II) rules are sometimes vague, perpetually in flux and subject to interpretation by more than 30 countries. It's understandable that managers already faced with a never-ending series of regulatory headaches would forgo creating another one.

While European marketing is trickier than it was 10 years ago, the AIFMD rules have been in effect for several years now, and precedent has emerged for best practice. We understand thresholds for UK pre-marketing, for example, and that reverse solicitation is not viable as a capital raising strategy. We understand how the Annex IV and the annual report work. We know the cost and effort required for registering in individual countries.

We also know the third party AIFM model is valid through empirical evidence; namely, the approval of several dozen funds using the third party model by AIFMD member states such as Ireland and Luxembourg. We know that approval for the third party AIFM model takes 5-6 weeks for AIFs and slightly longer for UCITs. We understand the nature of the regulatory relationships and how reporting to the Central Bank of Ireland, for example, would take place on a monthly or daily basis (depending on the fund's underlying liquidity). Complex tax issues such as Effectively Connected Income (ECI) have been vetted for direct lending and similar strategies which may produce US-sourced income.

In other words, we know which options are available, how much those options cost and how much friction/effort exists to set them up. We understand timelines, project plans and deliverables. But certainly, a lot still remains up in the air; for example, the European Securities and Markets Authority (ESMA) granting the Cayman Islands regulatory equivalency which would allow for non-EU (i.e., Cayman) domiciled funds to be pass-ported throughout the EEA. Yet, even if Cayman is granted equivalency, the timeline for implementation is uncertain, and the net result will simply be a decrease in the friction to establish an EU presence. A US-based manager will still have to either establish or work with a third party EU-registered AIFM. As there is a lower chance of the United States gaining equivalency due to legacy political issues between the US and EU, work involved in establishing that AIFM (alone or with a third party) will not be wasted.

TalkingPoint Two

No one is focused on marketing; everyone is hunkered down focusing on returns.

Reality: The two biggest lies in the hedge fund world are "I hate the press/media" and "I don't actively market." Anyone telling you the former has a PR agency on retainer and CNBC anchor on speed-dial. The latter? They just got back from a speed-dating conference and are having their sub-docs translated into Mandarin

The funds that are best at marketing have one common method: they market. They continually and systematically market during periods of good and bad performance, during up and down market cycles, and regardless of how desirable their strategy is at any point in time. The art of marketing (relationship-building, style and approach) is important, but the science of marketing (intelligent customer targeting, systematic and thoughtful approach) is essential. The best marketed funds approach the process of distribution with the same rigor as their research and investment process.

Investor conference attendance is close to all-time highs; NPPR and AIFM registration in Europe numbers in the thousands. >35% of alternative asset flows still come from the EU. Your competitors are aware of these facts and laying the groundwork for future asset flows.

TalkingPoint Three:

Europe is dead.

Reality: The world hasn't changed all that much. The percentage of alternatives capital coming from the EU has decreased a bit but has effectively remained in the 35-40% range over the last 10 years.

Indications are that EU institutional investors have more readily embraced the increased liquidity offered through fully registered EU vehicles (UCITS, Alt AIFs). Unlike the previous iteration of UCITS in the early aughts which fizzled out, this is a trend that is likely to continue, with MiFID regulations further enforcing a preference for a locally regulated product.

Those advocating a "wait and see" approach in the hopes that either regulatory clarity will emerge or investor flows will dramatically increase would be well-served to remember the following: (a) The EU experiment has produced a unified currency, not a unified governance approach. (b) It is unlikely that real clarity will ever emerge. While we wait, the groundwork required for building trusted relationships remains undone.

So moving past the talking points, the one message you should hone in would be:

You have proven and cost-efficient options for marketing in the EU.

AIFMD consists of over 170 pages of dense, sometimes vague regulations. But the rule has been around for some time now, so while experts may continue (and will likely never stop) debating certain interpretative elements, we now have several years of empirical evidence as to how EU regulatory behavior works. Here is what we know:

You have 4 options for marketing into the EU:

  • Don't market.
  • Ignore the rules/Reverse Solicitation.
  • Private Placement.
  • Set up or Hire an AIFM 1.

You may also have an additional option in the next few years. Non-EU passporting may be available for Cayman funds in an indeterminable amount of time. US-domiciled investment managers will still need to register or hire an AIFM, but the need for establishing a new EU vehicle may be removed. It's uncertain whether this will be implemented in the next two years however, so managers should be aware that this time could be spent establishing a network of pan EU investors.

Look, I get it; marketing is brutal. Speed dating conferences (while efficient and necessary) are exhausting. I understand because I've been there. With real speed dating, at least the end result is a date. Hedge fund speed dating ends, if you're lucky, with due diligence. Calling it speed dating is misleading; it should be called speed choosing your IRS auditor.

Because of this, many managers fall into the trap of ignoring or postponing marketing activity and neglecting to build a pipeline. In chart format, this logic looks like this:

To be fair, capital raising is not much better for investors. Having sat on both sides of the table, I assure you that your unique story has been heard more times than the phrase "fat cats" at a Bernie Sanders campaign event. Roadshows are fun when you're 22, hotels still hold mystery, and you haven't been scarred by that Dateline where they run a black light over the $1,000-a night-room. Otherwise, anyone who can tell their story 7-10 times in a single day and not want to gargle acid is a psychotic narcissist.

But you have to do it. You have to because the math says you do. A strong success rate for funds is 5-7%. That is, 5-7% of investors you meet will invest. That's 1-1/3 investors per ten meetings. If the average starting ticket is $5-$15M, then to raise $50M you need to 3.5-10 tickets. That's 35 - 70 meetings.Yes, there are viral effects (i.e., references among similar pools of investors), and yes, investors can and will increase their allocations, but the basic math is sound. It's a numbers game, and if you approach it as such you maximize the probability of success.


1. shameless plug

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

John D’Agostino
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.