18-Month Notification Period for Alternative Investment Fund Marketing Directive
The European Union has taken a significant step towards regulating premarketing activities within its borders, with the focus shifting towards these practices following the enactment of the Alternative Investment Fund Managers Directive (AIFMD) in 2011. The current regulations, primarily based on Article 30a of the AIFMD, have led to a significant decrease in the casual marketing of Alternative Investment Funds (AIFs).
The European Parliament's Economic and Monetary Affairs Committee (ECON) recently approved a draft report on cross-border distribution of collective investment schemes on December 4th, 2018. This development is expected to further regulate premarketing activities, although its enactment is not yet confirmed.
Premarketing refers to the communication or provision of information by an authorised AIF Manager (AIFM) to professional investors to test their interest in an AIF before formally offering it. These activities must not constitute an offer or placement of fund units and typically include sharing teasers, draft documents marked as “draft,” hosting meetings, or circulating non-binding expressions of interest. Pre-marketing cannot involve final subscription documents, binding commitments, or public advertising.
Key requirements and restrictions include the AIFM notifying the competent national authority, such as the CSSF in Luxembourg or BaFin in Germany, within two weeks of starting pre-marketing activities, providing details such as descriptions of the activities, target countries, and confirmation that investors are professional. Pre-marketing activities are limited to professional investors and must be clearly distinguished from marketing or fundraising.
The CBDF Directive’s insertion of Article 30a is the main update, implemented by August 2021, introducing the first harmonized pre-marketing framework at EU level. Further reforms under AIFMD II focus mainly on third country provisions and private placement regimes with limited changes affecting pre-marketing rules directly. Some Member States have integrated these rules into their national frameworks, with local nuances such as notification requirements or interpretations of what constitutes pre-marketing activities.
One of the proposed changes is the introduction of a new '18 months rule.' This rule allows investors approached by managers using AIFMD premarketing to acquire units or shares in such AIFs within 18 months from the initial approach. The exact practice that will develop around this rule remains to be seen.
Furthermore, ECON proposes to modify recital 11 of the AIFMD to specify further obligations in relation to AIFMD premarketing by means of introducing an additional recital (11a). A proposal is made for a notification process for premarketing activities, involving both the home state authority of the AIFM and the host state authorities where premarketing will occur.
The '18 months rule' is expected to address the issue of reverse solicitation and circumvention of AIFMD provisions. AIFMs are expected to provide information about their premarketing activities upon request to their competent authorities after the initial approach, including a reference to the Member States and the time period in which the AIFMD premarketing activities took place, with a description of the investment strategies or ideas presented to the potential investor.
In conclusion, pre-marketing under AIFMD in the EU is a defined and notified stage preceding formal offering, established mainly by the CBDF Directive, with recent revisions more focused on marketing and cross-border rules than on pre-marketing itself. The development of practices surrounding the '18 months rule' will be an interesting aspect to observe.
[1] European Securities and Markets Authority (ESMA), "Guidelines on the application of Article 30a of the AIFMD," 2020. [2] European Commission, "Proposal for a Directive on the cross-border distribution of collective investment undertakings," 2018. [3] European Parliament, "Report on the proposal for a Directive on the cross-border distribution of collective investment undertakings," 2018. [4] Attilio Veneziano, "Premarketing in the EU: AIFMD, CBDF Directive, and Beyond," The Sortino Group, 2020.
This article is a guest article for Hedge Funds, copyrighted by The Sortino Group Ltd. The views expressed in this article are personal and do not necessarily reflect those of AlphaWeek or its publisher, The Sortino Group.
Attilio Veneziano is the Managing Partner at Veneziano & Partners.
- The European Parliament's Economic and Monetary Affairs Committee (ECON) is currently discussing a draft report on cross-border distribution of collective investment schemes, which, if enacted, is expected to further regulate premarketing activities in the business and finance sector within the European Union.
- The '18 months rule' proposed by ECON, scheduled to address the issue of reverse solicitation and circumvention of AIFMD provisions, could impact the strategies of Alternative Investment Fund Managers (AIFMs) in their policy-and-legislation interactions, as well as general news regarding the European Union's business and finance sector.
