Fundraising in Europe
Marketing to European investors
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Understanding the regulatory framework governing marketing is a crucial first step for fund managers.
Various marketing routes are available, and the best option depends on factors such as the target countries, the type of investors (professional or retail), the scale of fundraising, and time to market. Managers must also bear in mind the regulatory burden, associated costs, and complexity.
What is pre-marketing?
Marketing starts once the fund is set up for distribution and fundraising. Before that, managers often conduct "pre-marketing" to assess investor appetite without formally offering the fund. This means they can't offer subscription forms or final documents that would allow investors to commit to the fund. This informal discussion of the fund’s strategy is regulated by AIFMD and individual countries to ensure managers do not seek capital without proper notification.
Watch Gregg Beechey, Partner at Fried Frank, introduce the various marketing routes available for U.S. fund managers in Europe below.
Let’s break down the options:
Option 1
AIFMD marketing passport
For fund managers planning to market extensively across the EU and raise significant capital, setting up an EU-based AIFM may be necessary to access the AIFMD passport, enabling easier marketing across multiple EU countries. Additionally, the AIFMD passport is ideal for fund managers looking to establish a long-term presence in the EU, offering a more sustainable and scalable framework for marketing and managing funds across the region.
However, the AIFMD passport is not available to U.S. fund managers. This means U.S. managers need to establish a presence in the EU or partner with a third-party in Europe with an AIFM license - though this will bring with it full compliance with AIFMD.
Option 2
National Private Placement Regime (NPPR)
NPPR allows managers to market to professional investors in individual EU countries without full AIFMD compliance. It also applies in some non-EU countries and regions like the UK which are not regulated under AIFMD but by similar local legislation. Fund managers must assess NPPR requirements for each country, such as registration and reporting obligations.
Use cases for NPPR include:
- Targeting only a few EU countries or specific European markets outside of the EU
- Smaller funds or those with a limited number of investors
- Managers with niche investment strategies seeking a particular type of investor in select European markets
In these cases, NPPR may offer a less burdensome route and reduce costs compared to AIFMD compliance, though it must be noted that it is not a universal solution and is not possible or practical in all EU countries.
Option 3
Reverse solicitation
A fund manager may offer or sell AIF units or shares to a European-based investor, only if the investor initiates contact. However, this carries significant legal risks, as reverse solicitation cannot be relied upon for active marketing or solicitation efforts. It is generally not a long-term strategy other than in very specific circumstances. It is also worth noting that registering for pre-marketing (see below) precludes subsequent reliance on reverse solicitation.
The number of countries in which a manager chooses to market will have significant bearing on the strategy selected.
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