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As part of the fundraising process, investors typically receive a private placement memorandum (PPM) outlining the fund complex' strategy, the USFM's track record, investment terms, and associated risks. Key reasons to issue a PPM is to inform investors and discloses risks to mitigate the risk of liabilities. When a USFM uses a Luxembourg SCSp the PPM should also be fit for European investors.
In the EU a PPM is not mandatory, but investors must receive detailed pre-investment disclosures covering areas such as investment strategy, conflicts of interest, fees, leverage limits, ESG considerations, preferential treatment, and more, known as the "article 23 disclosures". Importantly, EU regulations do not prescribe a specific format for these disclosures, giving USFMs flexibility in how they meet these obligations for their Luxembourg sleeve.
To meet the disclosure obligations there are essentially three approaches. The first involves integrating all required disclosures into the main fund PPM, which is shared with European investors. It means that non-European investors would also receive this information and may result in a substantial EU driven redlining compared to the previous vintage's PPM.
The second approach consists in preparing a Luxembourg "wrapper", which is a shorter document supplementing the US PPM, covering Luxembourg-specific details and EU disclosures, while cross-referencing the main PPM for commercial terms and track record. While the wrapper approach is generally more efficient from a drafting perspective, it requires EU investors to review both the main PPM. This route is generally preferred by USFMs.
The last approach consists in preparing a standalone full Luxembourg PPM including all relevant information for the Luxembourg sleeve, resulting in a longer, but potentially more user-friendly offering document for European investors, without affecting the main fund PPM. This route is usually chosen when the USFM has a significant pool of European investors and for subsequent vintages offered in Europe.
The choice ultimately depends on commercial considerations, investors' familiarity, and operational efficiency.
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.
