The Alternative Investment Fund Managers Directive, which came into force two years ago, is a hurdle most non-EU managers leap with reluctance. Forced to comply with the directive but denied an automatic pan-European marketing passport, managers have had to solicit capital from European limited partners through each country’s fund marketing rules, known as national private placement regimes.
For some fund managers in the US, with plenty of investor capital on their doorstep, the extra compliance and reporting costs involved in marketing to EU investors is not always worth the headache.
One US mid-market GP described to Private Equity International how he had difficulty contacting a UK-based LP when it was marketing last autumn. Ultimately, the LP ran out of time and did not invest, and even though the fund was “well oversubscribed”, the “daunting” legal barriers made it challenging for LPs in the AIFMD jurisdiction to become involved.
However, Britain’s vote to leave the EU could also mean it exits the AIFMD. Now US fund managers could find they have easier access to UK pension assets totalling almost £1.8 trillion (€2.1 trillion; $2.3 trillion), according to data from The Investment Association.
“If Brexit eliminates AIFMD in the UK, it will certainly streamline fundraising,” says the GP.
LPs in the US could also benefit. If UK fund managers no longer have access to the pan-European marketing passport, some may begin seeking the bulk of their allocations away from the continent to avoid the extra compliance and reporting burden.
The UK private equity community is pushing for a marketing passport to be able to continue marketing freely to EU LPs. While this should technically be straightforward given that the UK already has an AIFMD-compliant regime, none of these passports have as yet been extended to third countries.
And, as Simon Currie, private investment funds partner at global law firm Morgan Lewis, told PEI in July, there are other factors outside the control of the industry: “Obviously there may be a political dimension which comes into play about whether the [European] Commission would be prepared to extend the directive to the UK.”
In the meantime US firms will continue to treat the directive as before.
“This was always something the US GPs looked at [on a] country-by-country basis, looking both at the likelihood of receiving substantial commitments from a particular country balanced against the difficulty of AIFMD compliance in that particular jurisdiction,”
Kelly DePonte, managing director at placement agent Probitas Partners, tells PEI.
Unlike mega-funds, which are likely to register widely, smaller US funds will still “pick and choose their targets”, he adds.
And for European LPs looking to gain access to US funds the difficulties continue. Christian Kvorning, an investment director at Danish pension fund PKA, told PEI this summer that highly sought-after American funds rarely bother to market on the continent.
“They don’t call, they don’t market, they don’t come to Europe, they don’t contact us, we don’t know of them – they’re gone,” he said.
If US funds now have easier access to the UK, will the calls become even rarer?