Pre-Marketing in the EU/EEA - FAQ

Overview

To actively market/sell a fund in an EEA jurisdiction it is necessary to engage with the relevant regulator to notify/register the fund. 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. While the Cross-Border Distribution of Funds (CBDF) Directive introduced a new harmonised regime for pre-marketing in EU/EEA jurisdictions this only applies to certain fact patterns.

It is therefore still necessary to check for jurisdiction-specific requirements before commencing pre-marketing. In the following article, we look at the parameters of pre-marketing a fund (whether AIF or UCITS) within the EEA and highlight some examples of how what is permitted varies between jurisdictions.

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.

Pre-marketing AIFs eligible for AIFMD marketing passport 

Prior to the introduction of the CBDF Directive in the EU, Member States took different approaches as to what constituted permitted pre-marketing and some EU/EEA jurisdictions did not permit pre-marketing at all. To address this regulatory patchwork, the CBDF Directive (2019/1160) introduced a new harmonised regime for pre-marketing in the context of those AIFs that are eligible to be notified to use the AIFMD marketing passport and which will be offered to professional investors only. A specific definition set out in the CBDF Directive therefore sets out the scope of pre-marketing activities that can be conducted in respect of an EEA AIF with an EEA AIFM in order to test investor interest prior to committing to do the relevant passport notification and comply with all the associated regulatory requirements. 

The position for pre-marketing of AIFs prior to their notification to use the AIFMD marketing passport has therefore been largely harmonised across the EU and EEA (Iceland, Liechtenstein and Norway), although in certain cases certain jurisdiction-specific nuances still apply as discussed further below. 

Pre-marketing UCITS and AIFs prior to PPR authorisation/registration

There is currently no harmonisation of the rules applicable to pre-marketing of UCITS or AIFs that are not eligible for the AIFMD marketing passport i.e. where there is either a non-EEA AIF and/or non-EEA AIFM. Member States therefore still have discretion to decide whether pre-marketing is permitted in their jurisdiction and on what basis for the following scenarios:

• UCITS prior to the marketing passport notification
• AIFs prior to registration/approval to use the private placement regime (PPR) routes under Article 36 or Article 42 AIFMD
• AIFs registered/approved to be marketed/sold to retail investors

Firms must therefore assess the position for pre-marketing a fund that applies in one of the above fact patterns on a jurisdiction-by-jurisdiction basis.

2. What falls within pre-marketing under CBDF?

According to the CBDF definition, pre-marketing means 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 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, 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 CBDF Directive (Article 30a) then prescribes the types of documents which can be used to conduct pre-marketing to professional investors and whether they can be in draft or final form.

Note the following CBDF pre-marketing parameters:

• applies to both AIFs which are not established and AIFs which are established but not yet notified pursuant to the AIFMD marketing passport
• pitchbooks, presentations, term sheets, teasers, DDQ (draft or final) are permitted
• subscription documents (even if in draft form) are not permitted; final form constitutional documents/offering document are not permitted
• where draft form documents/offering document are provided, the marketing rubrics should clearly state that: (i) the documents do not constitute an offer/invitation to subscribe to units/shares of an AIF; and (ii) the information in the draft documents should not be relied on because it is incomplete and remains subject to change

However, we note that there are still discrepancies in interpretation between Member States, for example, a draft prospectus, offering document or constitutional document may not be used in Austria for pre-marketing where the AIF is already established.

3. What specific rules apply where pre-marketing pursuant to CBDF?

The following must be complied with:

• informal letter: within two weeks of any CBDF pre-marketing being conducted an informal letter must be sent by the EEA AIFM to its home Member State regulator specifying (i) in which Member States the pre-marketing was conducted and over what time period; and (ii) details of the actual activities undertaken including which AIFs/sub-funds were marketed
• limited information: the information provided must not enable professional investors to actually acquire interests in the AIF through pre-marketing
• previous de-notification: pre-marketing is prohibited if the AIF itself or another AIF with a similar investment strategy/idea has been de-notified in the preceding 36-month period
• investor type: pre-marketing only applies to professional investors unless a particular jurisdiction has extended the scope to other investor types. Each Member State may, at its discretion, permit marketing and/or pre-marketing of AIFs to retail investors in accordance with national laws, however, there is no harmonised EU-wide regime
• firm licence requirement: restrictions as to who can carry out pre-marketing apply – see “Who can carry out pre-marketing?” below

Remember that where the active marketing activities go beyond CBDF pre-marketing activities, such activities would be considered “AIFMD Marketing” which requires the AIF to already be notified in the Member State into which such marketing is to take place.

4. What are the pre-marketing rules for AIFs with a non-EEA element and UCITS?

For AIFs that must be marketed/sold via a jurisdiction’s national private placement regime (i.e. AIFs with a non-EEA AIFM (Article 42 AIFMD) or non-EEA AIFs with an EEA AIFM (Article 36 AIFMD)) pre-marketing was not harmonised by the CBDF Directive. The approach of each Member State continues to vary as to whether pre-marketing in this context is permitted and if so, on what basis. In some cases Member States have taken the opportunity to better align the two scenarios although note there is a provision in the CBDF Directive specifying that non-EU managers should not be advantaged over EU managers.

Similarly, there is currently no harmonisation of the rules applicable to pre-marketing of UCITS so it is up to each Member State to decide whether pre-marketing of UCITS is permitted prior to a passporting notification of the UCITS in that Member State.

We note that the position still varies greatly, for example:

• in Belgium, Germany and Netherlands, AIFs with a non-EEA element may be pre-marketed
• in Czech Republic, Denmark, Portugal and Sweden pre-marketing prior to PPR registration/approval is not permitted
• most Member States do not allow pre-marketing of UCITS however Austria, Belgium and Denmark do permit it, and in France, Germany and the Netherlands it is possible in certain cases

Note that in certain jurisdictions (e.g. Italy, Poland, Hungary) there is no private placement route for AIFs and therefore it is effectively irrelevant whether pre-marketing of such funds is permitted.

5. Who can carry out pre-marketing?

Where CBDF pre-marketing is to be conducted by a third party then that third party must be a MiFID II investment firm, a CRD credit institution, a UCITS ManCo or an EEA AIFM. This means that a third-country firm (e.g. a UK or US firm) cannot pre-market an AIF prior to its passporting notification. In certain jurisdictions, this is actual stricter than the requirements that apply to the firm marketing the AIF once it is passported e.g. the Netherlands.

These same requirements regarding the firm needing to have the requisite EEA licence generally also apply where pre-marketing is done in relation to AIFs with a non-EEA element prior to the PPR registration/ authorisation or a UCITS fund, where such pre-marketing is permitted.

6. What is the impact on relying on reverse enquiries?

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” for a certain period of time. 

The CBDF Directive includes a provision, which states that where a professional investor invests in an AIF within 18 months of the AIFM conducting pre-marketing, the investment shall be considered the result of active marketing, thereby requiring compliance with the requirements applicable to marketing by means of the AIFMD marketing passport and not as a result of reverse enquiry.

Unfortunately, the precise scope of the 18-month restriction in respect of reverse enquiries is not clear and it is up to each Member State to interpret this restriction. Most local counsel have indicated that it applies to all investors in the jurisdiction where pre-marketing took place and not only to investors that were recipients of the pre-marketing. However, Austria has gone further and counsel advise that the restriction applies to those investors who have received pre-marketing material indefinitely and not just for 18 months.

Some countries now also apply this restriction to reverse enquiries where there is pre-marketing of UCITS or AIFs prior to their PPR registration/authorisation.

7. Final thoughts

Although the introduction of the CBDF Directive harmonised the rules regarding pre-marketing across the EEA to a much greater extent than previously, there are still several differences in the applicable requirements depending on the type of fund to be marketed and in which jurisdiction.

aosphere has extensive and practical data on this topic for the following EU/EEA jurisdictions: Austria, Belgium, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Spain and Sweden.