We recently interviewed Head of Business Development, Fund Services, Paul Spendiff about how to effectively market alternative investment funds across Europe.
What are the three ways to market alternative investment funds in Europe?
There are three primary ways to market your fund across Europe. These are:
- Reverse solicitation
- Private placement
- Full AIFMD passports
Reverse solicitation is the least intrusive method and involves responding to unsolicited requests from investors. Private placement is a common method used by U.S. managers and involves country-by-country regulation compliance. The AIFMD passport allows managers to market their funds across the entire European Union, but is only available to those with European-domiciled funds who meet specific requirements.
What is reverse solicitation?
Reverse solicitation refers to the situation where an investor approaches a fund manager without the manager having marketed their product or service to the investor.
I should add that this should not be regarded as a 'marketing strategy'. While it is possible for a fund manager to accept investments through reverse solicitation, it carries a heightened risk.
To avoid any potential legal issues, it is essential for fund managers to document the investor's approach and prove that there was no prior marketing or contact. It is advisable to exercise utmost caution when using reverse solicitation, and it is recommended to limit it to only those investors who genuinely approach the fund manager.
What is private placement?
Private placement is a way to raise capital by offering to a limited pool of investors.
It is typically used by managers who are looking to Europe for the first time. This method is suitable when you have either a European AIF with a non-European AIFM, or a non-European AIF such as Delaware or Cayman Island fund for example.
Each country in Europe has its own regime for private placement, which can range from a relatively simple registration process at one end of the spectrum to extremely difficult or, in some cases, prohibited in others. As a general rule, it makes sense to only follow this path if your target investor profile aligns with those countries with a light or moderate regime.
What is an AIFMD passport?
An AIFMD passport is a legal mechanism that allows fund managers in Europe to market their funds throughout the European Union (EU) by registering with their home member state and notifying the host state regulator.
With an AIFMD passport, fund managers can market their funds to any professional investor in any country within the European Economic Area (EEA) without worrying about local private placement regimes. However, to obtain an AIFMD passport, a fund manager must have a European-domiciled AIF and a European-domiciled AIFM. This mechanism is considered the most facilitative, but it also requires consideration of the costs involved, depending on the level of interest from Europe.
Which funds marketing route should you choose to market your fund across Europe?
The cost and considerations vary greatly between the above methods and many firms will wait for a level of certainty before going down the full AIFMD passporting route.
Typically, we might see a firm receive a few reverse solicitations from European investors without the manager having performed any active marketing in Europe and they may have a couple of European LPs in their funds.
Over time, they may see more appetite from European and decide to go down the private placement route to figure out which jurisdictions they wish to focus on for raising further capital.
Finally, if they are seeing more significant levels of demand from across Europe then they may ultimately decide to go down the full AIFMD marketing passport route.
Another consideration is that there are increasing numbers of investors that will not or cannot invest into non-European, (offshore) funds. Or they may be prohibited from investing into funds that cannot provide certain reporting or disclosures such as Kiids or SFDR.
How can Ocorian help market funds?
As a fully licensed alternative investment fund manager (AIFM), Ocorian can be appointed through a marketing agreement to facilitate the pre-marketing and marketing of your AIF to LPs and other possible investors in the EU and the UK.
This ensures that when your fund project is realised, all marketing activity has been captured and will be notified in due course. Combined with our fund administration and AIF depositary capabilities, we are able to provide a true end-to-end solution to help fund initiators realise their investment strategies.
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.