Critics of Brexit will say it implies a kind of parochialism in which the UK pulls up the drawbridge and shuns its European neighbours. There may be some truth to this, though supporters of Brexit are more inclined to view it as the UK opening itself up to the wider world. Either way, a new regulatory development should see the UK, in one respect at least, continuing to be a key influencer in the continent.
Up to now, the country has been a shining light when it comes to the pre-marketing of alternative asset funds – the earliest stage in the fundraising process, where investor interest is generated before a vehicle is opened to subscription. The UK, where there is no significant restriction on the information that can be provided at the pre-marketing stage, lies at one end of the spectrum. At the other end is Belgium, which does not appear to recognise pre-marketing at all. The rest of Europe is somewhere between the two.
Now, thanks to the catchily titled Cross-Border Distribution of Collective Investment Undertakings Directive – which the European Parliament approved in April – the UK’s liberal approach is set to be extended across the continent. This is expected to reduce costs and hassle. In an article for the July/August issue of sister publication Private Debt Investor, Hogan Lovells lawyer Nick Holman said: “In some countries you have to remove the name of the fund and any of the terms, so effectively you have to have a different marketing deck in different countries, which is cumbersome and tedious.”
Costs typically include regulatory charges for notifications, the hiring of local lawyers to assist with the process, and the time taken to educate staff about the different pre-marketing rules in individual countries. This laborious process extends to countries from which the fund may receive no LP commitments at all.
What’s clear is that alternative fund managers are almost universally applauding the proposed change. In a recent survey by Intertrust, the administrative services provider, 91 percent of respondents cited regulation as the leading cause for concern when marketing funds across Europe.
Although the proposed changes will only apply to European funds, further tweaks are expected to be made to AIFMD that would allow the same kind of liberal approach for US funds pre-marketing in Europe. Many US managers have thus far restricted their European marketing to a handful of jurisdictions because of the complexities they have encountered elsewhere.
But while there is no date in the diary when it comes to changes benefiting non-EU vehicles, sources tell us they expect the new regime for EU funds to be implemented by the end of 2021, once it has been endorsed by the European Council and then turned into domestic legislation. The consensus is that it will not be a moment too soon.
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