Engaging a third-party EU AIFM ("host" AIFM) is a straight forward, efficient and well established option for U.S. Fund Managers wishing to benefit from an EU pre-marketing passport to raise capital in the EU, while remaining involved in the investment management process but outsourcing regulatory and operational responsibilities to a "host" AIFM.
First, let's start by clarifying a few key concepts. In broad terms, a U.S. private fund (privately placed under SEC regulations and typically targeting "accredited investors" or "qualified purchasers") may be akin to an EU Alternative Investment Fund or "AIF" (which generally targets "professional investors"). However, the specific criteria for both the fund and its investors differ substantially. Within the EU regulatory landscape, a U.S. fund manager is typically classified as a non-EU AIFM (i.e., a non-European AIF Manager). A detailed comparison is beyond the scope of this article and the above parallelisms shall be taken with caution.
1. What is Pre-Marketing?
In the EU, "pre-marketing" broadly refers to any direct or indirect communication—written, oral, or electronic—that provides information on an investment strategy or idea to potential professional investors in the EU to test their interest in an AIF. This can include high-level discussions at conferences, sharing indicative terms, or gauging appetite for a future fund launch.1
Pre-marketing is useful: While benefiting from the EU pre-marketing passport, it allows to gauge interest and refine an offering without triggering yet all the compliance obligations associated with marketing under the Alternative Investment Fund Managers Directive (AIFMD).
2. The EU Pre-Marketing Passport
The EU Cross-Border Distribution Directive and accompanying Regulation (often collectively referred to as CBDF Rules) allow an EU-authorized AIFM to "passport" its pre-marketing activities throughout the EU/EEA:
- How: pre-marketing notifications shall be filed with the AIFM's local regulator (i.e., the CSSF in Luxembourg for Luxembourg based AIFMs) within two weeks of commencing any pre-marketing.
- What: the CSSF pre-marketing notification letter requires the provision of details notably about the nature of the fund idea, the AIFM and timeframe.
3. Should a U.S. Fund Manager Consider Appointing an EU (Host) AIFM?
- A U.S. fund manager cannot itself benefit from the EU pre-marketing passport because it is not an EU-authorized AIFM.
- National Pre-Marketing Private Placement Regimes (NPPPR): Absent an EU AIFM, a U.S. fund manager would need to rely on the national pre-marketing private placement regime in each targeted Member State—if available at all (some but not all EU Member States allow non-EU AIFMs to pre-market in their jurisdiction). This process is however on a jurisdiction by jurisdiction basis and will require a filing in all those jurisdictions which allow it, which can be quite time-consuming.
The EU "Host" AIFM Model
Non-EU fund managers can engage a third-party EU AIFM ("host" AIFM) and benefit from an EU pre-marketing passport. Notably, Luxembourg has a well-established ecosystem of third-party AIFMs offering such services.
In practice, the EU host AIFM will:
- handle the filing of the pre-marketing notifications;
- assist/intermediate the U.S. fund manager's interactions with prospective investors (so-called "chaperoning model");
- coordinate with the U.S. fund manager to ensure compliance with the AIFMD framework.
It is essential to define the scope of the AIFM's involvement during pre-marketing. This is typically governed by a pre-marketing agreement that clarifies responsibilities, timelines, and compliance protocols.
4. Dos and Don'ts during the pre-marketing phase
- Dos:
✓ Share general strategies, high-level fund ideas, or
indicative terms.
✓ Seek investor feedback to refine your fund
proposition.
✓ Provide draft pitch decks and other materials (including
draft LPAs or PPMs) that are not in final form and clearly marked
with a relevant pre-marketing disclaimer.
- Don'ts:
X Provide subscription documents, even in draft.
X Provide information sufficient to allow investors to commit to
acquiring units or shares of the AIF.
X Provide any documentation in final form.
X Mention non-EU funds (such as a non-EU parallel fund) in the Lux
fund documents, if these are still open for subscriptions and are
not planned to be marketed in the EU. Otherwise, there is a risk
these might be seen as being "pre-marketed" in the EU
without the requisite notification.
5. Reverse Solicitation: an alternative?
Since the CBDF Rules, a U.S. fund manager can no longer rely on reverse solicitation with respect to an EU investor from an EU jurisdiction for a particular fund, if it has engaged in any prior pre-marketing activities in that Member State. Reverse sollicitation exists in situations where an EU investor contacts a U.S. fund manager on their own initiative, without any prior marketing or pre-marketing activity by the sponsor. However, this must be a genuine unsolicited approach, which U.S. fund managers shall need to be able to prove in writing.
Note: Once a pre-marketing notification has been filed with respect to a certain jurisdiction, for the following 18 months it is presumed that any onboarding of investors made in such jurisdiction would be the result of "marketing" i.e. the reverse solicitation route would no longer be available in such jurisdiction for the investment idea indicated in the pre-marketing filings (this is without prejudice to reverse solicitation option for other investment ideas/strategies).
Since the current EU rules broadly define pre-marketing, and pre-marketing is accompanied by a legal presumption that any following subscription is the result of marketing, it has become very difficult and risky to rely on reverse solicitation in the EU.
6. Conclusion
Having in mind, the benefits of using a host "AIFM" for pre-marketing purposes in the EU and the very well-established ecosystem of third-party AIFMs offering such services in Luxembourg, please reach out to our team at nicolasfermaud@elvinger.us or jeanthomaspradillon@elvinger.us for tailored advice.
Footnote
1. More precisely, in Luxembourg, article 1 (58-1) of the amended law of 12 July 2013 on alternative investment fund managers defines "pre-marketing" as the "provision of information or communication, direct or indirect, on investment strategies or investment ideas by an EU AIFM or on its behalf, to potential professional investors domiciled or with a registered office in the European Union in order to test their interest in an AIF or a compartment which is not yet established, or which is established, but not yet notified for marketing in accordance with Article 31 or 32 of Directive 2011/61/EU, in that Member State where the potential investors are domiciled or have their registered office, and which in each case does not amount to an offer or placement to the potential investor to invest in the units or shares of that AIF or compartment".
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.
