There is common misconception among US and other non-EU investment managers that selling their funds into the EU is risky or prohibitively complicated. While this may have been partially true in the past, it is simply no longer the case.
Historically, due to the confusion and/or complexity of the EU, US managers used a fly-in, fly-out model where a manager would meet with prospective clients, discuss its strategies, and then look for the prospective client to ask for more information – effectively using reverse solicitation in each instance.
This type of marketing model – moderately effective at best – has never been without risk. The marketing model operates in a grey area of the law that required record keeping and individual fact-based analysis to confirm reverse solicitation. Marketing strategies just to induce reverse solicitation in a fund could always be seen as circumvention of marketing and passporting rules in the EU.
However, this legacy marketing model is no longer needed nor the corresponding worry, concern, or risk. Due to recent changes to EU law and developments in the industry, US managers can use EU law to sell their funds, instead of avoiding it.
There are three straightforward options for US managers to gauge interest from potential EU investors and market and sell their funds.
What’s Changed?
Change to the EU landscape for marketing funds (including non-EU funds) occurred gradually and can be attributed, in a large part, to Brexit and the 2021 EU Cross Border Distribution rules (“CBD Rules”) which comprise of the Cross Border Distribution Regulation or “CBDR”, Cross Border Distribution Directive or “CBDD”, and local implementation of CBDD in each EU country.
This overall change is highlighted by two key points:
Following Brexit, EU regulators began to privately, and then more publicly, denounced UK personnel from engaging in marketing activities in the EU through their EU-based affiliates. EU regulators made it clear that all activities, such as marketing EU funds, should take place directly from the EU (i.e. where the EU regulators have full oversight).
Around the same time, the CBD Rules went into effect which specifically defined what Pre-Marketing is and created a corresponding regulatory framework for managers to gauge EU interest in their funds ahead of any passporting or registration. As part of the CBD Rules, local countries had to implement their local rules, certain countries provided specific wording that allowed the Pre-Marketing of non-EU funds.
What was the result?
By understanding the rules of Pre-Marketing, the objective of EU regulators, and analyzing existing EU country’s local rules on private placement, US managers now have three clear paths for marketing US funds that utilize EU law, instead of trying to avoid it.
The Three Paths:
1. Non-Regulated Activities
a) What can you do?
b) Where?
c) Items to Consider:
2. Direct Pre-Marketing
a) What Can You Do?
b) Where?
c) Items to Consider:
3. Hosted Pre-Marketing
a) What can you do?
b) Where?
c) Items to Consider:
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Scott G. Parkin is the Head of US for Zeidler Group.
Zeidler Group is a boutique asset management law firm and legal technology firm with newly opened US offices in New York City and Phoenix. Serving over 250 asset managers globally across 70+ jurisdictions, Zeidler Group specializes in cross-border distribution. As well as research-driven legal guidance, we offer various digital solutions for fund managers’ legal and compliance needs, including a Marketing Material Review Tool (MMR-Tool) that uses Large Language Models for reviewing investment fund marketing materials against the laws of multiple countries as well as a customizable Vendor Due Diligence solution to efficiently manage questionnaire distribution, completion and rating as well as mitigate risk. Zeidler Group provides future-proofed solutions in navigating regulatory landscapes.