Global Distribution Part III:
Europe
Philip Morgan, Partner, London
Sean Donovan-Smith, Partner, London
Pasquale Marini, Partner, Milan
Giulio Sandrelli, Senior Associate, Milan
Christian Büche, Partner, Frankfurt
Till Fock, Partner, Berlin
© Copyright 2014 by K&L Gates LLP. All rights reserved.
Introduction: Non-UCITS Fund Distribution to
Professional Investors in EEA
 AIFMD Article 42 becoming familiar: investor
reporting; regulator disclosure; regulator reporting;
application/notification to regulator in each relevant
jurisdiction
 Practical operation of passport less familiar because
still not many full-scope AIMFs have been authorised;
home member state notification; 20 working day
procedure; should work even in EU states that have
not yet implemented AIFMD; passport only available
to authorised AIFMs
172
Introduction: Non-UCITS Fund Distribution to
Professional Investors in the EEA
 Transitional relief, where it applies, expiring on 21
July 2014, except transitional relief applying in
particular closed-end fund situations where fund
closed to new investment (and query the position for
late-adopters)
 Closed-ended funds with transferable securities –
passport provisions do not apply to marketing of
shares the subject of an approved prospectus drawn
up and published prior to 22 July 2013 for ‘the
duration of validity of that prospectus’
173
Introduction: Non-UCITS Fund Distribution to
Professional Investors in EEA
 However both Prospectus Directive and AIFMD
requirements apply, e.g. in relation to disclosure
requirements, in other cases
 In the UK, financial promotions regime preserved but
overriden by AIFMD in a case of the offering of an
AIF to professional investors
174
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Timeliness of AIFMD implementation
 UK – on time (but not early) with everything;
relatively loose interpretation of transitional period;
likely large overhang of unresolved AIFM applications
on 22 July 2014; presumably some applications will be
late and it is not entirely clear what will happen in
those cases
 Germany – on time as the first jurisdiction in the EU to
implement AIFMD; transitional period for private
placements expires on 21 July 2014; only few
authorisations for AIFMs granted by BaFin
175
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Italy – AIFMD 1st level implementation decree came
into force on 9 April 2014 – 22 July 2014 is the term for
existing AIFM to comply with new rules
 However, 2nd level implementation measures are
still in the making (expected by October 2014)
 Some pre-AIFMD rules continue to apply until 2nd
level measures come into force in respect of new
AIFMs and marketing of new AIFs (e.g., on
governance and capital requirements, remuneration
conflicts of interest, marketing regulation)
176
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 What activity is understood to be ‘marketing’ in an
AIFMD sense?
 “a direct or indirect offering or placement at the
initiative of the AIFM or on behalf of the AIFM of units
or shares of an AIF it manages to or with investors
domiciled or with a registered office in the EU”
 UK – includes contractual offer and invitation to treat;
does not include secondary trading/listing; promotional
presentation or pathfinder PPM not an offer unless
investment can be made; financial promotion regime
covers pre-offer phase; distribution through
intermediaries can be indirect offering
177
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 What activity is understood to be ‘marketing’ in an
AIFMD sense?
 Germany – includes contractual offers and invitations
to treat; does not include secondary trading as long as
not intended to circumvent marketing provisions;
includes investors who are already invested; may
include indirect marketing through intermediaries (to be
assessed on case-by-case basis); AIF must already be
established or ready to be offered, discussion of
investment strategies is not a marketing of an AIF;
broader scope if marketing relates to retail investors
178
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Italy – No specific guidance issued by local authorities
so far; it is likely that Consob will adopt pre-AIFMD
criteria, which are close to the UK current interpretation
of ‘marketing’
 In essence, promotional presentations and pre-offer
phase may fall within the concept of ‘marketing’, if
investors are put in a position to make an offer /
directly subscribe for investment
 Implementation decree clarifies that marketing
through intermediaries is an indirect offer
179
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Approach to reverse solicitation
 Offering other than at the initiative of, or on behalf of,
the AIFM
 UK – investor is person who makes the decision to
invest therefore may need to look through
intermediary/agent; FCA guidance that confirmation
from the investor that offering made at investor’s
initiative normally sufficient to evidence reverse
solicitation unless “obtained to circumvent the
requirements of AIFMD”
180
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Approach to reverse solicitation
 Germany – no specific guidance yet, except that a
mere reaction to order by an investor will not constitute
marketing; expected to be interpreted rather narrowly
 Italy – Consob has not issued express guidelines on
reverse solicitation
 However, this practice is informally accepted, provided
that it is “genuine”
 According to Consob precedents, reverse solicitation
following distribution of marketing materials in Italian
and/or setup of websites in Italian might not be
considered genuine
181
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Approach to marketing by intermediaries and the use
by investors of consultants
 UK – PERG 8.37; AIFMD A.42 compliance necessary
where offering at the initiative of, or on behalf of AIFM,
by MiFID investment firm; but marketing via another
intermediary probably indirect offering; question
whether investor consultants are acting on behalf of
either (i) managers, or (ii) investors
182
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Germany – Marketing Guidance by BaFin generally
allows marketing by third persons if no acting on behalf of
the AIFM; BaFin will make assessment by reviewing on
case-by-case basis
183
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Italy – When AIFs are marketed via intermediary to nonprofessional investors, Italian “financial promoter”
regulation applies (i.e. intermediaries must be MiFID
firms, other AIFMs or consultants enrolled in a special
register); marketing via intermediary to professional
investors may be construed as indirect offering, at least if
consultant clearly acts on behalf of investors and reverse
solicitation occurs
184
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Has there been, or is there likely to be, any local
gold-plating of AIFMD?
 UK – Not much; notification procedure re. Article 42 not
strictly required but not unduly onerous; NB No
regulator approval or authorisation required under
Article 42 procedure; fees; criminal consequences of
breach of promotion rules
 Germany – yes, like other jurisdictions (e.g. Austria,
Denmark) Germany requires depositary (light) function
to be implemented
185
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Italy – While gold-plating measures are not relevant in
the marketing regulation, significant gold-plating
concerns Italian AIFs
 Exempt AIFs below Euro 100M/500M threshold
must be registered with the Bank of Italy, even if
AIFMD art. 3 exemption applies
 Draft 2nd level regulation requires high minimum
investment thresholds (Euro 500k) for retail
investors participating in AIFs dedicated to
professional investors (so called “reserved AIF”)
186
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Other ideas as to how funds/investment managers
can get access to the local market
 E.g. ways to structure around AIFMD; marketing
investment services not funds; no AIF
 Effect of other non-AIFMD local rules
 UK – extensive guidance on AIFMD perimeter can help
 Germany – long-standing tradition for repackaging
funds into structured products; other ideas, e.g.,
registered-only feeders still untested
187
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Italy –
 Reverse solicitation and marketing through EU
member states with lighter regulation and no goldplating provisions is traditionally used by non-EU
investment managers to reach Italian investors
 Although authorities are taking a strict approach on
the AIFMD perimeter, certain types of “investment
companies” currently operating in Italy could be
exempt (e.g., real estate companies, SPAC and
private equity entities subject to listing on a
regulated market)
188
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Treatment of closed-ended funds subject to
Prospectus Directive
 UK – comply with both regimes for disclosure; need
FCA to approve prospectus per Prospectus Directive
regime
 Germany – same position as in the UK except that
closed-ended funds established under German law
usually do not issue securities
 Italy – both regimes apply (as in the UK); however,
notification to Consob under AIFMD is also valid as
request for prospectus approval under PD
189
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 What is the local approach to AIFMD remuneration
regulation, for example the proportionality test?
 UK – extensive guidance on proportionality test and
application to delegates; size (NB £1bn and £5bn AuM
thresholds); guidance on assessment of complexity;
examples used helpfully e.g. carry in typical private
equity structure
 Germany – currently no specific local approach in
Germany, rather ESMA guidelines are declared
applicable
190
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Italy – Regulation on this point still to be implemented; at
present, Italian AIFMs are not subject to extensive
regulation on remuneration
191
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 What is the local approach to AIFMD’s jurisdictional
scope?
 UK – AIFMD A.42 compliance only necessary where
AIFMD ‘marketing’ takes place in the UK; marketing to
UK investor in New York not covered; interpretation
seems consistent with AIFMD A.42
 Germany – similar position as UK; however, A.42
might apply, if intermediaries are used that market in
Germany
192
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Italy – Consob must be notified if Italian AIFM markets
AIFs to professional investors in Italy or within the EU; no
authorisation required for marketing outside EU borders
193
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Is the AIFMD marketing passport being respected
locally?
 UK – yes. NB. ESMA opinion that recognises the right
of firms to be able to exercise passport rights in
Member States that have not yet transposed the
Directive. MiFID services performed by AIFM can be
passported into other EU jurisdictions under AIFM
passport – but query whether all EU Member States
currently agree. Under MiFID II, the position is made
clear
194
Examination of Cross-Jurisdictional
Differences/Similarities of Approach
 Germany – yes
 Italy – Passport respected also in the transitional
period (while 2nd level implementation is adopted – see
ESMA opinion); Italy agrees with performance of
MiFID services by authorised EU AIFM under AIFM
passport
195
Questions
197