On 12 July 2019, the Official Journal of the European Union (OJ) published a new EU cross-border distribution directive and regulation. In Part 1 below, we discuss the new directive, Directive (EU) 2019/1160 of the European Parliament and of the Counsel of 20 June 2019, amending Directives 2009/65/EC on Undertakings for Collective Investment in Transferable Securities (UCITS) and 2011/61/EU on Alternative Investment Fund Managers (AIFMs and the “AIFM Directive”), with regard to cross-border distribution of collective undertakings (the “Cross-Border Distribution Directive”). The Cross-Border Distribution Directive includes the following significant features:
- A uniform definition and conditions for AIFs “pre-marketing” to potential professional investors
An EU authorised AIFM may engage in pre-marketing activities to test an investment idea or an investment strategy with EU potential professional investors to test their interest in an Alternative Investment Fund (AIF) or a compartment which has not yet been established, or which is established, but has not yet been notified for marketing in the Member State where the potential investors are domiciled or have their registered office, and which in each case does not constitute an offer or placement for those potential investors.
Pre-marketing rules shall apply to Reserved Alternative Investment Funds (RAIFs) subject to the Law of 23 July 2013 on Reserved Alternative Investment Funds (the “RAIF Law”) to the extent that the Cross-Border Distribution Directive applies to the AIFMs which manage RAIFs.
Pre-marketing in the EU shall not be permitted where the information presented to potential professional investors:
- is sufficient to allow investors to commit to acquiring units or shares of a particular AIF;
- consist of subscription forms or similar documents whether in draft or final form; or
- consist of constitutional documents, a prospectus or offering documents in final form for a not-yet-established AIF.
However, AIFMs will be able to provide such investors with a draft prospectus or offering documents provided that such documents do not contain information sufficient to allow investors to make an investment decision and shall clearly state that:
- they do not constitute an offer or an invitation to subscribe to units or shares of an AIF, and
- the information presented therein should not be relied upon because it is incomplete and may be subject to change.
The pre-marketing notification procedure is as follows:
- the AIFM shall send a letter to its home Member State regulator (the Commission de Surveillance du Secteur Financier (CSSF) with for a Luxembourg AIFM) within 2 weeks of beginning its pre-marketing; and
- the letter must specify where and for which periods the pre-marketing is taking place or has taken place, with a brief description of the pre-marketing activities (including information on the investment strategies presented and where relevant, a list of AIFs and compartments thereof (if any) which are or were the subject of pre-marketing). The AIFM must ensure that its pre-marketing is adequately documented. Regulatory guidance is expected to provide clarification on the level of detail to be provided;
The investors shall not acquire units or shares in an AIF through pre-marketing when that AIF contacted them as part of its pre-marketing activities, unless such acquisition is through marketing permitted under the AIFM Directive; and
Any subscription made by professional investors within 18 months of the AIFM’s beginning pre-marketing shall be deemed to be the result of marketing, for which a marketing filing must be made.
This begs the question of whether commencing any pre-marketing activity will exclude reliance on reverse solicitation for a period of 18 months.
The CSSF has stressed in its Q&A (11 April 2019) that reverse solicitation shall in no circumstances be invoked to circumvent the requirements in the AIFM Directive.
Regulatory guidance is expected to clarify the scope of reverse solicitation in the context of pre-marketing.
- A new procedure for de-notification of marketing of units or shares of Undertakings for UCITS and AIFs
The Cross-Border Distribution Directive puts in place uniform requirements for de-notification, in case UCITS or AIFs shall no longer market in a particular EU Member State.
Such requirements include, inter alia:
- making a blanket offer to repurchase or redeem units or shares held by investors in that Member State which is publicly available for at least 30 working days and is addressed individually to all investors in that Member State, free of any charges or deductions (this requirement does not apply to closed-ended AIFs);
- informing the investors about the intention to terminate arrangements made for marketing in that Member State; and
- terminating any contract with financial intermediaries or delegates (local distributors) on the de-notification effective date to prevent any new or further, direct or indirect, offering or placement of the units or shares identified in the de-notification.
Once an AIF is de-notified with respect to marketing, the AIFM may not then engage in pre-marketing that AIF, or another AIF with a similar investment strategy or investment idea, in that Member State for a period of 36 months from date of de-notification. As a result of this new rule, the AIFM may decide not to make a de-notification filing to allow it to engage in pre-marketing of relevant successor funds without being obligated to wait for 36 months.
- New facilities to be made available to UCITS or AIF retail investors
Treatment of retail investors is aligned with new requirements for both AIFMs and UCITS to put in place certain facilities for each Member State in which they market to retail investors.
The Directive must be transposed into national law by 2 August 2021 at the latest and Member States must apply those new provisions from that same date.
For any other information or queries, please contact Me Le Squeren or Virginie Leroy (Solicitor)