Fundraising in Europe
Determining your best route to market
Written in collaboration with:
There are several key considerations for European market entry.
U.S.-based fund sponsors must determine early in the preparation phase, which strategies for capital raising from EU investors are most effective, and how to incorporate these strategies into their overall fund offerings.
Selecting the appropriate option will significantly impact the proposed fund’s structure, regulatory approach, operational strategy, and tax efficiency. Understanding the preferences of the target limited partner (LP) base is crucial to avoid limiting the success of the fundraising efforts and to prevent unnecessary complexity. Timing is essential, as any approach to European marketing will require additional processes and filings with regulators.
Set up an alternative investment fund (AIF):
What is it?
This fund is established within the EU and appoints a fully authorized Alternative Investment Fund Manager (AIFM) under the Alternative Investment Fund Managers Directive (AIFMD). This enables it to be marketed extensively to European institutional-grade investors, defined as "professional investors", and potentially to other investors where local regulations permit. However, the AIFMD passport is not available to U.S. or other non-EU managers. Consequently, U.S. managers must either partner with a third-party AIFM in Europe to manage the AIF, or establish their own regulated AIFM within Europe.
Advantages:
Gaining access to the AIFMD passport allows managers to market to professional investors across all EU countries on a relatively simple and uniform basis. Some EU-based institutional investors will prefer an EU AIF structure for their own internal compliance purposes.
It may be possible to delegate the crucial portfolio-management function back to the U.S. manager.
In some EU states, tax advantages are available for European regulated AIFs which are not available, or not easily replicated, for non-EU funds. These can be significant if the fund invests into the EU, as well as sources investors from the region.
As an EU-wide regulatory status, the AIF may be insulated to some extent from future legislative changes, particularly around foreign ownership or tax compliance.
Challenges:
This approach brings a heavier regulatory burden, with strict compliance, risk management, and capital requirements, making it costly to maintain. Most EU regulators have a considerable lead-time to authorizing a new AIFM, and minimum staffing requirements based on the regulatory functions to be undertaken by the AIFM. Engaging a third party AIFM will mitigate some of these costs.
Set up a non-EU fund and rely on National Private Placement Regimes (NPPRs):
What is it?
This is a fund established outside the EU (e.g. Cayman Islands, Channel Islands, Delaware etc.) which is marketed to investors in accordance with the specific rules in individual European countries, to the extent they allow for non-EU private placements.
Advantages:
This approach involves a lighter regulatory burden compared to full AIFMD compliance, in particular no EU-based AIFM is required, and many ongoing compliance obligations do not apply. This means that, in the long run, it can be significantly more cost effective than a fully regulated structure. The existing fund structure can be selectively marketed in countries where it has target investors provided. A NPPR is available, without the need for an EU-wide regulatory umbrella or any new fund structures.
Challenges:
There is limited access compared to the AIFMD passport which means some EU countries can be placed off-limits from a marketing perspective. Fund Sponsors must navigate individual country-specific regulations with some material variations between them and undertake a separate regulatory application in each such country, which can be costly and time-consuming.
Many European investors prefer EU-based funds, potentially limiting the target investor base or leading to an investment being turned down solely for structural reasons.
Use a parallel fund structure:
What is it?
A parallel fund structure involves creating a separate fund vehicle in a European jurisdiction which appoints a fully regulated AIFM and operates alongside the master fund, wherever that is situated. Both funds invest in the same portfolio of assets and follow the same investment strategy.
Advantages:
This structure allows U.S. managers to continue managing their primary fund and operations in the U.S. without changing their operational approach or presenting U.S. investors with a new platform, while also allowing an easier route to marketing to EU investors. U.S. (and global) investors can be isolated from the additional costs of an EU AIF.
Challenges:
Managing parallel fund structures can involve significant additional complexity due to the need to comply with both U.S. and European regulatory regimes, including those arising from different legal, tax, and reporting requirements in each jurisdiction. Legal and regulatory clashes can arise between the structures, such as requirements related to environmental, social and governance (ESG) requirements. The additional costs of the EU-based parallel structure will typically be borne solely by the investors in that parallel structure, rather than diluted across the whole LP base.
Selecting the appropriate capital-raising strategy early on will significantly impact the fund’s structure, regulatory approach, operational strategy, and tax efficiency.
Aztec Group is authorized to provide financial services in the jurisdictions in which it operates.
© 2025 Aztec Group.