Fundraising in Europe
Choosing a fund structure
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Choosing the right fund structure means understanding many factors.
From a structuring perspective, U.S. fund managers raising U.S.-based funds will be most familiar with the limited partnership (LP) and limited liability company (LLC) (particularly as formed in the State of Delaware) as the fund vehicles of choice for U.S. investors. However, when fundraising in Europe, U.S. fund managers will need to consider a wide variety of European fund structures, which vary from U.S. (Delaware) fund structures.
Watch Ed Lee, Partner at Proskauer Rose LLP introduce the legal frameworks and structuring options for U.S. fund managers.
Choosing the right structure for an AIF in Europe
When choosing the right structure for an AIF in Europe, particularly in the Channel Islands, Luxembourg, and Ireland, several key factors must be considered.
By considering these factors, U.S. fund managers can structure an AIF that is efficient, compliant, and appealing not only to European investors, but investors from all parts of the world.
- Regulatory compliance: Jurisdiction choice affects compliance with AIFMD, and the availability of the AIFMD marketing passport.
- Tax considerations: The interaction between the tax treatment for investors by the fund jurisdiction and the countries where the fund expects to invest is a key element.
- Investor preferences: The fund structure should align with investor expectations, especially in reporting and regulatory standards, but also in terms of cost and jurisdictional familiarity. The expected size of the investor base is also a factor.
- Operational considerations: Fund managers should assess the cost and complexity of setting up and operating a fund in a particular jurisdiction, including the need for local service providers for compliance.
- Liquidity: Where relevant, being able to structure liquidity and redemption policies to meet investor needs is crucial.
- Flexibility: A key benefit to U.S. fund managers operating U.S. LPs/LLCs is the flexibility afforded by these entities to the managers and their investors to contractually structure economic and management rights among themselves as they see fit. It will therefore be important for U.S. fund managers to choose an AIF structure in Europe that will afford similar flexibility to facilitate and document the intended commercial arrangements for the fund.
- Documentation: Investors will expect the AIF fund agreement to include typical market terms and, where the AIF is a parallel vehicle alongside a fund set up in the Cayman Islands or Delaware, for example, being able to incorporate consistent concepts and drafting approaches is vital to ensure terms are consistent across a fund structure.
- Time to market: The speed with which a structure can be formed can also be a key factor when selecting jurisdiction and fund structure. More highly regulated structures by their nature take longer to establish, which may not fit with the intended fundraising timetable. While time to market will vary across European jurisdictions, U.S. fund managers should anticipate that the time to market for any European jurisdiction will generally take longer compared to U.S. (Delaware) fund structures, given that U.S. private funds are currently subject to less robust anti-money laundering requirements and regulatory approvals with respect to forming fund vehicles.
Let’s examine these factors in common European fund structures:
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A well-chosen fund structure balances regulatory compliance, tax efficiency, and investor preferences.
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