Using reverse solicitation to distribute fund products to EU investors, has since the introduction of the Alternative Investment Fund Managers Directive (“AIFMD”) in 2013 remained a marketing strategy in itself for non-EU managers.
With the implementation of the new EU cross-border marketing rules (Directive (EU) 2019/60 and Regulation (EU) 2019/1156) (the “Cross Border Rules”)) on 2 August 2021 and the subsequent implementation thereof in local member state legislation (ongoing), the continued use of reverse solicitation as a distribution ‘strategy’ has become even more uncertain for non-EU managers.
To facilitate the reverse solicitation approach, investors are often required to sign up to representations in their underlying subscription agreements along the following lines:
“The Investor received the Offering Materials through private negotiations initiated by the Investor, and not through any general solicitation or general advertising.”
“The Investor was not offered the opportunity to subscribe for a Commitment (or otherwise invest) in the Partnership by means of any form of general solicitation or advertising. None of the General Partner or any person acting on its behalf offered to sell the Investor a Commitment by means of any form of general solicitation or advertising.”
Certain marketing options for unlicensed, non-EU managers to consider are:
- EU member state private placement regimes (NPPR’s) as envisaged by Article 42 AIFMD (to the extent that a member state has opted to not apply the Cross Border Rules to non-EU managers in implementing same in local legislation);
- Appointing a regulated, European hosted management company as AIFM (a number of member state regulators continue to disapprove of this construct); or
- Appointing local placement agents or intermediaries.
These options all have associated advantages/disadvantages and qualification/disclosure/reporting requirements attached. In order to make an informed decision on adopting a suitable short and mid-term distribution strategy, all these factors and their consequences have to be carefully evaluated by investment managers.