Chronologically, the new rules will affect EuVECA and EuSEF fund managers first. For these managers, the new regime will come into effect at EU level within 20 working days of its entry into force. For all other EU fund managers the rules will need to be transposed into national law. A transposition period of two years is envisaged for this. It is not yet clear how the new pre-marketing regime will apply with regard to non-EU fund managers.
Uniform Definition of Pre-Marketing
For the first time, an official definition of the term pre-marketing will be provided which will be admissible under certain conditions.
Pre-marketing is defined as the direct or indirect provision of information or communication on investment strategies or investment ideas to potential investors resident in the EU in order to test their interest in a fund which is not yet established, or which is established but not yet notified for marketing in the respective member state.
As a consequence, the current pre-marketing regime in Germany will be tightened. Currently, a fund manager only has to analyze whether it has already crossed the line between pre-marketing and marketing. If the activities do not yet qualify as marketing, a fund manager is still in the sphere of currently unregulated pre-marketing. Under the new pre-marketing regime, a fund manager must now analyze whether its activities already fall under the (new) definition of pre-marketing and – if that is the case – file a pre-marketing notification (see below).
Since the newly introduced EU definition of pre-marketing is very broad, it would hardly be possible for a fund manager to talk to a potential investor in Germany about the investment strategy of its upcoming funds without crossing the line into pre-marketing.
Requirements for pre-marketing documents
In addition, a catalogue of information is provided which should not be made available to potential investors in order to avoid (regulated) marketing. In essence, potential investors should not yet be able to make an investment decision. Furthermore, the information taken together must not contain any subscription documents in final or draft form, nor any formation documents, prospectuses or the like in final form. When these conditions are met, however, will remain a judgment call, the interpretation of which will depend on the national supervisory authorities and any comments made by ESMA.
If documents are provided during the pre-marketing, such documents must contain a disclaimer clarifying that they do not constitute an offer or solicitation to subscribe to fund interests and that such documents are non-binding and subject to change.
Finally, the compromise reached stipulates that fund interests may not be acquired through pre-marketing, but only in accordance with the marketing rules.
Notification of pre-marketing
Within two weeks of the beginning of pre-marketing, fund managers shall send an informal letter, in paper form or electronically, to the supervisory authority of their home Member State. This notification has to indicate the relevant Member States in which pre-marketing activities are carried out, the relevant funds and the relevant period of time.
The competent authority of the home Member State will then inform the competent authorities of the Member States where pre-marketing took place, which authorities may in turn request further information via the supervisory authority of the home Member State. It remains to be seen how this notification obligation will be applied to third country fund managers. The new rules currently only stipulate that EU fund managers shall not be disadvantaged vis-à-vis third country fund managers.
All pre-marketing activities must be adequately documented by the fund manager.
The planned reform will also have an impact on the topic of reverse solicitation. Fund managers should no longer be permitted to rely on reverse solicitation if they have carried out pre-marketing in relation to the fund in question within the previous 18 months. Any subscription to a fund interest within this period will be considered the result of marketing.
No reverse solicitation at all will be possible vis-à-vis investors who were approached in the context of pre-marketing. Such investors will therefore not be able to subscribe via reverse solicitation even after the end of the 18 months.
The compromise that has now been reached still has to be adopted by the competent committee of the European Parliament, as well as in plenary, in order to enter into force. Now that agreement has been reached between the European institutions, this is likely to happen in the near future. The new rules for EuVECA and EuSEF fund managers will then enter into force within 20 working days. For all other fund managers, the rules will have to be transposed into national law within a two-year transposition deadline.
- A harmonised definition of pre-marketing will be provided.
- The permitted information used in the field of pre-marketing will be regulated.
- In future, pre-marketing will require prior notification to the supervisory authority in the fund manager’s home country.
- Pre-marketing must be adequately documented.
- Reverse solicitation shall generally be excluded during a period of 18 months starting from the beginning of pre-marketing. Reverse solicitation vis-à-vis investors addressed in pre-marketing should be excluded even beyond this period.
Overview – Fund management in Germany