Over summer, ESMA updated its Q&A on the AIFM Directive (EU Directive 2011/61/EU) with some new questions (and more importantly, answers) - including with respect to pre-marketing in a context of sub-threshold managers (AIFMs).

Summary: ESMA confirmed that sub-threshold managers are not subject to the obligation to notify pre-marketing (unless otherwise required by national rules). The flip-side is of course that national rules will apply and should be considered carefully if a sub-threshold manager intends to (pre-)market in a EU jurisdiction.

Structure: In this post, we will first shortly discuss the new Q&A on pre-marketing by ESMA, then take a step back to what the pre-marketing regime entails for licensed managers. Finally, we will draw some conclusions on the position of sub-threshold managers vis-à-vis licensed managers.

No obligation to notify pre-marketing #

ESMA confirmed that sub-threshold managers (assuming they have not opted in for the full-scale, licensed regime), are not subject to the obligation to notify pre-marketing – save if required otherwise under national rules.

This is not surprising: activities of sub-threshold managers are in principle governed by national rules (see also here on the sub-threshold regime). Sub-threshold managers do not have a passport to exert asset management activities or market securities across borders.

Article 3(2) of the AIFM Directive explicitly states that only the registration requirements set forth in that article 3 apply to sub-threshold AIFM (together with the provisions with regard to competent authorities in article 46). On that basis, the pre-marketing rules included in article 30a of the AIFMD do not apply.

The pre-marketing regime #

Since the so-called Cross-Border Distribution Directive of 2021, the AIFM Directive includes a requirement to notify pre-marketing to relevant national authorities.

‘Pre-marketing’ means “provision of information or communication, direct or indirect, on investment strategies or investment ideas by an EU [manager] or on its behalf, to potential professional investors domiciled or with a registered office in the Union in order to test their interest in an AIF or a compartment which is not yet established, or which is established, but not yet notified for marketing [..], in that Member State where the potential investors are domiciled or have their registered office, and which in each case does not amount to an offer or placement to the potential investor to invest in the units or shares of that AIF or compartment”.

Under article 30a of the AIFM Directive, a licensed manager may engage in pre-marketing, as long as the information presented to potential professional investors: (a) is sufficient to allow investors to commit to acquiring units or shares of a particular AIF; (b) amounts to subscription form or similar documents (whether in draft or in final form); or (c) amount to constitutional documents, a prospectus or offering documents in a not-yet-established AIF in a final form.

The managers must ensure that investors do not acquire units or shares in an AIF through pre-marketing, and that investors can only acquire them through marketing in the meaning of article 31 and 32 of the AIFM Directive. Any subscription by professional investors within 18 months of the EU AIFM having begun pre-marketing is considered the result of marketing and subject to the applicable notification procedures (the “18 Month Rule”).

No prior notification is required to start pre-marketing, notification must occur within 2 weeks to the home-state authority (which must inform the host authorities).

Three consequences of non-applicability EU pre-marketing rules #

1. Pre-marketing is not marketing #

By introducing the pre-marketing concept in the AIFM Directive, the European legislator explicitly recognizes that pre-marketing is not marketing. Some national rules implementing this directive have simply added a concept of ‘pre-marketing’ similar to the one in the AIFMD, thereby also implicitly confirming the same.

Hence, where marketing of securities is a regulated activity but pre-marketing is not, this means that in principle sub-threshold funds would in fact be able to conduct pre-marketing without registration or license. By adhering to the conditions of pre-marketing, sub-threshold managers could in certain cases considerably easier argue that they are not conducting marketing activities and therefore fall outside the scope of marketing restrictions or prohibitions.

2. Reverse enquiry #

Furthermore, sub-threshold managers may in certain cases rely on reverse enquiry in situations where licensed AIFMs could not.

Indeed, the 18 Month Rule in fact makes it all but impossible for full-scale managers to rely on reverse enquiry as from the point where they have started pre-marketing. On the other hand, sub-threshold managers could in principle still rely on reverse enquiry linked to pre-marketing to fall outside the scope of marketing restrictions.

3. National rules are key #

However, the above are theoretical considerations made solely on the basis of EU rules.

As indicated, sub-threshold managers (like third country managers) are fully governed by national rules. Hence, specific implementations, restrictions on pre-marketing or wider national definitions of marketing could considerably alter the above conclusions. Where certain jurisdictions have rather favourable treatments for (pre-marketing) by sub-threshold managers, others definitely do not.

Therefore, it is in any case crucial to carefully consider the relevant national rules if a sub-threshold manager intends to (pre-)market in a EU jurisdiction.

– Note: This post is a personal opinion/analysis and cannot be considered legal advice. Feel free to reach out if you wish to discuss further or require advice for your specific situation! –