Pre-marketing Around the World - FAQ

Overview

To actively market/sell a fund it is sometimes necessary to engage with the relevant regulator to notify/register a fund in a jurisdiction. Firms therefore often wish to restrict their activities to certain introductory “pre-marketing” activities in order to test the waters and gauge investor interest before committing to incurring the cost and investing the time in the applicable registration/notification. However, whether this is actually permitted is jurisdiction-dependent as differing rules regarding pre-marketing apply depending on the type of fund to be marketed and where.

In the following article, we look at the parameters of pre-marketing a fund in various jurisdictions around the world and highlight some examples of the differing approaches.

1. What is pre-marketing?

Pre-marketing is generally viewed as “soft marketing” or pre-launch marketing activities conducted to assess investor appetite prior to registering or notifying a fund. It is useful, where permitted, as it enables asset managers to “test the waters” and gauge whether there is sufficient investor interest in a particular jurisdiction before proceeding to register/notify the fund and comply with associated regulatory requirements. Such activities are typically distinguishable from general marketing.

The concept of “pre-marketing” is particularly important in an EU/EEA context as all funds (whether AIFs or UCITS) need to be either registered or notified if they are to be marketed/sold on an active basis. Firms are therefore keen to identify if there are certain pre-marketing activities that can be conducted to gauge investor interest prior to committing to the regulator notification/regulation. In 2019, the EU/EEA introduced a harmonised regime for pre-marketing of alternative investment funds setting out when and how it is permitted.

However, outside the EEA, whether pre-marketing is relevant and if so on what basis differs from jurisdiction to jurisdiction. Firms must therefore assess the position on a case-by-case basis. For example, in some jurisdictions, it is possible to actively market and sell a fund to investors without the fund being registered/notified with the regulator because the activity is being structured in a specific way (e.g. only directed to certain types of investors within the scope of an exemption for that investor type (e.g. professional investors or qualified investors) or pursuant to some sort of tolerated practice). In this case there will be no distinction between pre-marketing and active marketing activities. 

2. Is pre-marketing permitted prior to a fund being registered/notified?

A lot of jurisdictions outside the EEA do not have specific rules regarding pre-marketing and the rules which apply to the active marketing/offering of a fund in a jurisdiction will also apply to pre-marketing. For example, this is the situation in Qatar and South Africa where the fund must be approved before it can be actively offered.

However, some jurisdictions do specifically allow pre-marketing prior to the registration/approval of the fund with the regulator. We discuss the specific parameters which might apply to such permitted pre-marketing in the next section. 

Also, in some countries, for example South Korea, while there isn’t a formal “pre-marketing” route, local counsel advise that the risk of regulators raising an issue if a firm engages in some low profile "pre-marketing" to gauge initial interest from a limited number of investors should not be substantial provided the fund is registered before any investment is accepted and a locally licensed intermediary is appointed for the formal marketing stage. 

3. What sort of parameters apply where pre-marketing is permitted?

Where pre-marketing is possible prior to a fund being registered/approved, such activities are likely to be subject to certain conditions. Here are some examples of conditions that apply in some jurisdictions:

Activities do not amount to an “offer” - in certain countries, the active marketing of funds may trigger a public offering restriction, however, assessment of investor appetite may be possible without complying with public offer requirements where the activities undertaken do not amount to an “offer”. For example, in Guernsey, if a preliminary offering document or "red herring" is to be circulated in advance of the final offer document, the regulator does not expect the prospectus requirements to be complied with, provided that appropriate disclaimers are included in the "red herring" document. 

No money is accepted - the CMA in Kuwait may allow communication with potential clients to assess their interest in investing in the fund whilst the fund application is being assessed. No money or otherwise should be received or a final obligation to subscribe in the fund until the licence is obtained from the CMA.

No signed commitment/expression of interest from the investor – in Jordan, activities limited to assessing investor appetite to invest in a future fund with no signed commitment/expression of interest from the investor is permitted if the fund does not yet exist and no draft subscription or offering documents are distributed.

Only to certain investor types - where a firm will be marketing/selling a fund in Morocco using the private placement exemption, the firm may start discussions (orally only) with relevant “Accredited Investors” to get an indication of whether they want to invest before receiving local approval of the fund provided no “advertising, financial canvassing or selling” occurs. No marketing/disclosure documents may be provided to investors at this stage.

Only for a certain time period - prior to recognition of certain funds in the BVI, it is permitted to carry out some pre-marketing for a period not exceeding 21 days prior to the fund obtaining recognition.

4. Does pre-marketing have an impact on relying on reverse enquiries?

In the EEA where pre-marketing has been carried out, it is generally no longer possible for an approach by an investor in that jurisdiction to be considered a “reverse enquiry” if it occurs within 18 months of the pre-marketing. 

This concept also applies in the DIFC for example, where any pre-marketing activity is likely to negate the future availability of the reverse enquiry exemption. As a result, many firms prefer to refrain from any pre-marketing activities.

In other jurisdictions, the position should be checked on a case-by-case basis. Even if there is no formal regulatory position on this point, firms should note that the risks of jeopardising a future ability to rely on a reverse enquiry, will generally risk the more that firm conducts active marketing activities (including pre-marketing) in the relevant jurisdiction. 

5. Final thoughts

Pre-marketing as a concept is generally not widely used outside the EEA and often there is no difference between the rules that apply to active marketing/offering of a fund and those that apply to pre-marketing. However, it is worth assessing this on a jurisdiction-by-jurisdiction basis as there are certain countries where pre-marketing is possible either before starting the process to get a fund approved or during that process.

We have in-depth content on pre-marketing of funds for all the below jurisdictions:

• Americas: Argentina, Bahamas, Bermuda, Brazil, British Virgin Islands, Canada (Alberta, British Colombia, Ontario and Quebec), Cayman Islands, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Panama, Paraguay, Peru, United States, Uruguay and Venezuela
• Asia-Pacific: Australia, Brunei, China, Hong Kong SAR, India, Indonesia, Japan, Kazakhstan (excluding AIFC), Macau SAR, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam
• Europe: Austria, Belgium, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, Ireland, Isle of Man, Italy, Jersey, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Russian Federation, Spain, Sweden, Switzerland, Turkey and United Kingdom
• Middle East and Africa: Abu Dhabi Global Market (ADGM), Bahrain, Botswana, Dubai International Financial Centre, Egypt, Israel, Jordan, Kenya, Kuwait, Mauritius, Morocco, Nigeria, Oman, Qatar, Saudi Arabia, South Africa and United Arab Emirates

For pre-marketing inside the EU/EEA, see our article