New Draft Of AIFMD Update Eases Pre-Marketing Requirements

The European Commission has put forward amendments to the 2011 Alternative Investment Fund Managers Directive that includes clarifying and setting out uniform rules on what constitutes 'pre-marketing' activity, a topic that has been an area of controversy since the directive came into force in 2013. However, the rules have been eased in a fresh draft following criticism from the alternative fund industry.

The Commission published a draft directive in March 2018 amending both the UCITS and AIFMD regimes governing the cross-border distribution of retail and alternative collective investment funds, as well as a proposed regulation on facilitating cross-border fund distribution, as part of a legislative package designed to help complete its Capital Markets Union project.

The legislation aims to make possible pre-marketing of alternative funds in EU member states where it is not currently permitted. However, the proposal sparked controversy because in some cases AIFMs would find themselves subject to more restrictive rules than in the past, especially under regulators such as the UK's Financial Conduct Authority or Luxembourg's Financial Sector Supervisory Authority (CSSF) that have been accommodating toward pre-marketing under the existing, less prescriptive AIFMD requirements.

Differences of interpretation

At present, an EU alternative investment fund manager must notify its home regulator of its intention to market an EU-domiciled alternative fund either in its home jurisdiction or another EU member state. While the directive provides a definition of 'marketing', interpretations of this in practice vary from one country to another.

Some EU members treat any initial contact with a prospective investor as marketing, while others allow a degree of pre-marketing contact without the requirements of the AIFMD being triggered. The proposed directive would incorporate a definition of pre-marketing into the AIFMD and to specify the conditions under which it is permitted.

Under the Commission's original draft, pre-marketing was defined as the direct or indirect provision of information on investment strategies or investment ideas by or on behalf of an AIFM to professional investors domiciled or registered in the EU, to ascertain their interest in a fund that has not yet been established.

Threat to existing investment practice

This activity would in the future be permitted throughout the EU, without any requirement on AIFMs to notify regulators when...