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Luxembourg Funds Intelligence Briefing
14th September 2020

Luxembourg’s specialised investment fund regime has become a magnet for controversy in the grand duchy following claims that it is being used by property investors to avoid tax and that SIFs are fuelling speculation driving domestic real estate prices higher. A study by the Robert Krieps Foundation think-tank says beneficiaries include one of the country’s largest insurers, while the head of the county’s public employees trade union argues that the taxation of SIFs should be reviewed as the government seeks sources of revenue to pay for Covid-19 recovery measures.

— Simon Gray, Editor in Chief 


Fund Services
Axelle Ferey to head Luxembourg office of DLA Piper

Law firm DLA Piper has appointed Axelle Ferey head of operations at its Luxembourg practice. She joins from KPMG France, where she advised clients on regulatory and compliance issues related to asset management. Ferey has previously worked in Luxembourg for EY, Arkus Financial Services and Arendt & Medernach.

Best source: Paperjam (in French)

Emmanuel Gutton appointed legal and tax director at ALFI

Fund association ALFI has appointed Emmanuel Gutton as legal and tax director in succession to Marc-André Bechet, who has been named as deputy managing director. Bechet, who will oversee the communications, events and business development departments, occupies a position vacant since the departure of Anouk Agnes in June 2019. Gutton, who has been head of legal for Pictet Asset Management (Europe) since 2016, was previously a member of the Paris and Luxembourg bar and has previously been with Elvinger Hoss Prussen and Linklaters in the grand duchy.

Best source: Paperjam (in French)


Regulation
Property developers abusing specialised investment fund rules: Robert Krieps Foundation

Real estate developers are misusing Luxembourg-based specialised investment funds to speculate on the property market without paying tax, according to Max Leners, author of a report for the Robert Krieps Foundation think-tank. He says more stringent regulation is required for SIFs, which were established as a vehicle for alternative investment that would not be subject to double taxation, but which the study says are now being used by Luxembourg residents to reduce their tax liabilities. Leners cites insurance company La Luxembourgeoise, which used SIF funds to invest €30.3m in two buildings in 2018. The investments yielded €300,000 in rental income last year but were subject only to the 0.01% subscription tax on the increase in fund assets instead of the 19% corporate income tax rate.

Best source: RTL 5 minutes (in French)
See also: Fondation Robert Krieps

Union leader questions low taxation of Luxembourg specialised investment funds

Romain Wolff, president of public employees’ trade union CGFP, says personal income taxes should not be raised to pay for measures taken to support the economy during the Covid-19 pandemic. Instead he has questioned the level of taxation levied on specialised investment funds domiciled in Luxembourg, saying the subscription tax of 0.01% on fund assets mainly benefits wealthy investors.

Best source: RTL Today
See also: RTL 5 minutes (in French)

Total CSSF financial penalties down by two-thirds in 2019

The CSSF imposed fines totalling €1.76m in 2019, down from €5.8m the previous year. Sanctions against banks fell from €4.67m in 2018 to €734,000, although penalties on investment companies of €420,000 were around four times the previous year’s total. Fines for support financial sector professional entities fell to €32,000, with three specialised PSF being fined a total of nearly €180,000 and fund managers nearly €250,000. At €124m, the regulator’s turnover remained stable, although after a net profit of €14.9m in 2018, it recorded a net loss of €4.5m, with staff costs increasing by 12% to €98.6m.

Best source: Paperjam (in French)

Financial regulator fines CGFP Epargne €30,000 over administrative irregularities

Luxembourg financial regulator CSSF has fined CGFP Epargne, the investment services business of the country’s public employees’ trade union,€30,000 for irregularities in the way the organisation was managed. Jos Daleiden, the union’s former secretary-general and chairman of its business arm CGFP Services, says the penalty has been imposed over a formality and is relatively insignificant. The CGFP has lodged an appeal against the decision with Luxembourg’s administrative court, which if it takes up the case is expected to rule on it next year. The union announced last December it would close down CGFP Epargne after 40 years.

Best source: Reporter (in French)


Technology
Fundsquare partners with fintech firm Kurtosys for data disclosure solution

Fundsquare has agreed a partnership with US-headquartered financial technology company Kurtosys to offer a solution for asset managers’ compliance with data disclosure requirements, combining the Luxembourg firm’s dissemination platform and the Kurtosys distribution cloud. The new offering will streamline the data integration process and expand the range of data dissemination options for customers, according to Kurtosys global head of sales Patrick McKenna, as well as reducing time to market for product launches and providing operational and IT cost savings.

Best source: InFinance (in French)

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Private Equity In The Covid-19 World: Hero Or Villain?

Covid-19 impacts economies across the globe

The private equity industry has long struggled to overcome a public reputation for maximising profit and jeopardising healthy businesses by loading them with unsupportable debt and charges. In light of the new world we live in, can the sector restore its image by helping to relaunch economies after the Covid-19 pandemic?

Over the past two decades the private equity sector has evolved from a marginal and mostly obscure corner of the investment industry into a core element of the financial system.

Now the Covid-19 pandemic and its aftermath poses unique challenges for private equity firms and their investors living in a world where company valuations are fluid and volatile, creditworthiness is cloudy and governments seem set to play a far more prominent role in economic management than at any time this century.

In terms of financial heft, private equity should be well placed for a leading more in economic recovery. Worldwide, the industry is flush with cash — or at least commitments.

Private equity funds have a record $2.5 trillion available in ‘dry powder,’ money pledged by investors that firms have not yet drawn down.

The environment promises to be welcoming for firms with money to spend, especially those specialising in distressed debt, of which there is plenty expected to emerge over the coming months and years, or those seeking to build industry-leading portfolio companies through bolt-on acquisitions that add scale.

Alternative to turbulent public markets

True, the market environment for private equity investment was looking less favourable before the pandemic emerged and lockdowns began. The huge pile of dry powder reflects in part an increasing shortage of suitable investment targets, which had been pushing up prices.

But private equity, along with other types of more complex and longer-term investment, looks more attractive to institutional investors than turbulent public equity markets, cash earning next to nothing in interest and bond markets yoked to the imperatives of central bank monetary easing strategies.

Not to mention the clouds gathering over that staple of institutional investment portfolios, commercial real estate.

However, private equity has its own hurdles to overcome to position itself as a saviour of struggling companies and stuttering economies.

First and foremost? A wretched public image, fuelled by both misunderstanding of what private equity is and does and by the industry’s frequent tone-deafness to wider concerns of society.

Private equity’s opaqueness, complexity and lack of public accountability is often placed in contrast with the (supposed) transparency of companies listed on public markets.

Critics such as Sheila Smith, a former senior economist at the UN Development Programme, describes the sector as “termite capitalism”, targeting a business model characterised by reliance on borrowed money rather than investors’ capital, asset stripping and job destruction, opaque fee structures, unsustainable extraction of returns through dividends funds by further borrowing and use of debt and offshore structures to reduce, often to zero, tax liabilities in the companies in which portfolio companies operate.

Investing for the long term?

In vain do private equity companies protest that their business involves not wanton extraction of assets but the creation of value through the restructuring and re-energising of struggling, directionless companies, the empowering of capable managers and the incentivisation of employees, and that they focus on companies’ long-term development, not just the next quarter’s bottom line.

Because it’s such an emotive phrase, they don’t like to speak of ‘creative destruction.’

But that’s a key driver of the private equity model: stripping away dead-end jobs and businesses and replacing them with new ones that are more productive and have a long-term future.

Some of the criticism is certainly unfair. The obsession with the offshore tax haven structures of private equity (and other alternative investment firms) tends to ignore the key classes of institutional investor that are non-taxpayers, such as university endowments and charitable organisations.

Rather than a pure creature of plutocratic vampire capitalists, the private equity industry is driven principally by the needs of their investors: pension funds to meet their commitments to retirees and insurance companies to meet policy-holder claims.

It’s against this unfavourable reputational backdrop that the private equity sector must face the challenges of the post-pandemic world.

What will it look like?

Swings and roundabouts

In the short to medium term, the industry is suffering similar hits to revenue and profit as other businesses. Antoine Drean, founder of private equity placement agency Palico and consultancy Triago, expects profit-sharing – carried interest – on above-benchmark returns to dry up, especially for firms with heavy exposure to the most vulnerable areas of the economy, such as the hospitality, travel and energy sectors.

Hugh MacArthur, Graham Elton and Brenda Rainey of consultancy Bain & Company argue that dealmaking is set for a slump while firms focus on the health of existing portfolio companies and bank lending to the sector is likely to be significantly constrained and subject to significantly tighter conditions (although this is likely to be offset by the sheer volume of dry powder and likely lower valuations of acquisition targets).

They say private lenders, a significant force in the market since the global financial crisis, should also help fill the gap while the need to exit mature portfolio companies in order to provide returns to investors will also spur deal flow.

The Bain & Co. partners also warn that some investors may find themselves financially squeezed if calls on existing capital commitments exceed private equity distributions.

This points to a reduction in fundraising, at least temporarily, after a decade of soaring inflows from investors looking to private equity’s historically higher levels of return to offset the impact of interest rates at rock-bottom or worse.

While the industry’s overall levels of return are likely to take a quick hit from lower valuations on existing investments, especially those made near the peak of the market, the recessionary environment should yield more profitable opportunities.

Private equity and Covid-19: Core role in institutional portfolios

Can we expect a better reputation for private equity in the months and years after Covid-19? There’s no guarantee that public perceptions will change radically in the near future.

Since the onset of the pandemic, the sector has drawn fire from politicians and others over the insolvency of venerable names of American retailing such as Neiman Marcus and J. Crew, although the critics tend to ignore that the businesses have been deteriorating for years in the face of changing consumer habits and growing internet competition.

However, with near-zero interest rates apparently locked in for years to come, barring an upsurge in inflation that stubbornly refused to materialise despite a decade of loose monetary policy, the core position of private equity in institutional asset portfolios seems more likely to strengthen than to diminish.

In a world where job preservation is now a central economic policy objective, private equity firms will also be under pressure to avoid wholesale layoffs and business closures.

They and their investors likely will have more skin in the game as the peaks of bank leverage of recent years recede and the days of egregious debt-driven dividend recapitalisations are probably mostly over for the foreseeable future. If private equity can claim to be playing a role in saving viable companies and jobs, it may become less of a bogeyman for critics of capitalism.

But it shouldn’t count on being better loved.







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Luxembourg fund assets lifted by stock market boom, and other business-critical industry news

Every Monday, VitalBriefing is proud to publish its exclusive Luxembourg Funds Intelligence Briefing, featuring our editors’ selection of the most important stories of the week that impact the funds industry.

We invite you to check it out below, and if you like what you see, subscribe to receive the briefing FOR FREE to your inbox each week.

 

Luxembourg Funds Intelligence Briefing
13th January 2020

 

 

 

Luxembourg’s investment fund asset total, second in the world only to the US, continues to be lifted by the year-long stock market boom since the downturn at the end of 2018. From €1.5trn in 2009, in the aftermath of the global financial crisis, the industry’s net assets had risen to €4.67trn at the end of November. However, most of the increase in assets over the first 11 months of 2019 came from market growth rather than net inflows.

 

— Simon Gray, Editor in Chief

 

 

Asset Management
Fund assets set fresh record of €4.67trn in November

Net assets under management of Luxembourg-domiciled investment funds reached a record €4,669.7bn at the end of November, according to the CSSF. The sector has enjoyed almost a year of uninterrupted growth following the slump in global financial markets in the fourth quarter of 2018.

Best source:

Paperjam

(in French)

 

Fund Services
Thibaut Partsch joins Elvinger Hoss Prussen as partner

Alternative investment specialist Thibaut Partsch has joined Elvinger Hoss Prussen as a partner in the law firm’s asset management and investment funds practice. A member of the Luxembourg Private Equity and Venture Capital Association, Partsch was previously with international law firms in Brussels, New York and the grand duchy, including 12 years with Loyens & Loeff, and is a member of the bar in both New York and Luxembourg.

Best source:

Elvinger Hoss Prussen
Aztec Group supports close of Headway Capital Partners PE fund

Fund services provider Aztec Group says it has assisted UK-based private equity fund manager Headway Capital Partners on the final close of its HIP IV fund with total commitments of €372m. Aztec helped Headway with the fund’s formation and fundraising, and will provide ongoing administration services from its Luxembourg office.

Best source:

Luxembourg Chronicle

 

Regulation
Paris lobby group calls for more transparency from activist funds and short-selling restrictions

Paris Europlace, the lobby group for the French capital’s financial industry, has added its voice to calls for greater transparency on the part of activist funds targeting French companies, as well as seeking restrictions on short-selling. The group recommends that funds inform the targeted company of their plans and sources of finance, and share any non-public communications with the company’s shareholders. Paris Europlace has also proposed rules for proxy advisers and securities lending.

Best source:

Les Echos

(subscription required, in French)

 

Technology
Fintech firm Numbrs to relocate most of Luxembourg team to Switzerland

Martin Saidler, the founder of Swiss fintech firm Numbrs Personal Finance, says it will close its subsidiary Numbrs Luxembourg, with nine of the office’s 11 employees to be transferred to its Zug office. The firm’s main product is an app that aggregates bank account and credit card information and facilitates mobile banking and personal financial planning. Numbrs blames reported problems with the app on the implementation of the EU’s revised Payment Services Directive, but has threatened to take legal action against anyone publishing false speculation about the company.

Best source:

Inside Paradeplatz

(in German)
LuxTrust to open Paris office in European expansion drive

Digital certification firm LuxTrust is to open an office in Paris in the coming months as part of its strategy to target the wider European market, according to communications director Stéphanie Godar. The firm has recently developed products involving secure digital signatures alongside its existing digital identity services.

Best source:

Paperjam

(in French)

 

Customise This Briefing

This free weekly Intelligence Briefing critical for your Luxembourg fund interests, prepared by our top financial journalists, can be personalised just for you: Essential and accurate fund market news to deploy internally and for your customers. Contact us to explore how we can customise to boost your brand and your business.

 

Brexit : le Royaume-Uni – et le Luxembourg- en voyage vers l’inconnu

Simon Gray a longtemps travaillé au Luxembourg comme journaliste financier. Photo: Editpress/Hervé Montaigu

Simon Gray a longtemps travaillé au Luxembourg comme journaliste financier. Photo: Editpress/Hervé Montaigu

Voici encore quelques mois, alors que les défenseurs du Brexit promettaient à leurs compatriotes qu’ils pourraient avoir le beurre et l’argent du beurre, personne n’aurait pu imaginer que l’on se retrouverait dans la situation actuelle.

Alors que le Gouvernement et le Parlement britanniques tentent toujours – en vain- de s’accorder sur une éventuelle sortie du Royaume-Uni de l’Union européenne et, le cas échéant, sur ses modalités, le Luxembourg doit lui aussi faire face à de nombreuses incertitudes.

En effet, l’avenir du secteur financier luxembourgeois et en particulier les activités liées aux fonds d’investissement pourraient être considérablement secoués par un tel événement. Selon Standard & Poor’s, le Luxembourg est le pays qui, après l’Irlande, devrait ressentir le plus intensément les répercussions du Brexit.

Les magistrales erreurs commises par les dirigeants britanniques qui ont conduit à cette situation ont été amplement commentées. Parmi elles, on peut rappeler la mise en place du referendum de 2016 dans l’espoir des dirigeants britanniques de balayer “une fois pour toutes” l’insurrection eurosceptique qui minait le parti conservateur depuis plus de trois décennies.

Ou encore l’organisation d’élections législatives anticipées en 2017, inutiles, dont les résultats ont finalement fragilisé la majorité en place, ne laissant à aucune des forces politiques en présence les marges de manœuvre suffisantes pour sortir de l’impasse. En résulte, au final, cette stratégie absconse, insaisissable, rendant difficile la négociation et la conclusion d’un accord de sortie de l’Union européenne.

On peut se réjouir, au moins pendant quelques mois encore, que les pires craintes d’un Brexit sans accord ont été balayées (avec le risque de briser purement et simplement des relations financières qui ont été construites pendant plus d’un demi-siècle, d’empêcher les Britanniques de vivre et de travailler au sein de l’Union européenne, ou même de perturber la circulation aérienne entre l’Europe continentale et le Royaume-Uni).

Grâce au pragmatisme dont ont su faire preuve les autorités financières, au Royaume-Uni, au Luxembourg ainsi qu’au niveau de l’Union européenne, les règlements vont, en toute probabilité, rester en l’état actuel, au moins jusqu’à la fin de cette année, et sans doute encore durant 21 mois, voire davantage, quel que soit le dénouement du débat interne britannique.

A priori, le secteur financier luxembourgeois devrait être un bénéficiaire important du Brexit, aux côtés de Dublin, Francfort, Paris et Amsterdam ou encore Madrid.

A priori, le secteur financier luxembourgeois devrait être un bénéficiaire important du Brexit, aux côtés de Dublin, Francfort, Paris et Amsterdam ou encore Madrid Face au risque de ne plus pouvoir accéder au marché unique en cas de Brexit, près de 60 gestionnaires d’actifs, prestataires de services financiers et assureurs spécialisés, ont déjà fait le choix de s’installer au Grand-Duché.

En effet, des acteurs financiers établis au sein de l’Union européenne bénéficient d’un passeport leur permettant de distribuer leurs produits et services dans d’autres États membres sans avoir à obtenir d’autorisations supplémentaires. Si le Royaume-Uni devait sortir de l’UE, les acteurs financiers britanniques perdraient cet avantage, même sous un accord de sortie.

L’arrivée de ces acteurs au Luxembourg a eu pour effet de renforcer la position de la place financière internationale, et plus particulièrement son pôle d’activité lié aux fonds d’investissement. C’est d’ailleurs sans doute heureux que cette tendance n’ait pas– à ce jour– mené à une croissance majeure de l’emploi dans le secteur de la finance luxembourgeois.

A l’approche de la date initiale du Brexit, le 29 mars, le mouvement de migration d’acteurs venus du Royaume-Uni vers le Luxembourg semblait s’accélérer, les institutions financières craignant que la période de transition additionnelle de 21 mois ne se concrétise pas.

Selon la dernière estimation de Luxembourg for Finance, dix entreprises britanniques supplémentaires ont fait le choix de s’installer au Grand-Duché en février, portant leur nombre total à 58, dont 31 gestionnaires d’actifs. En outre, le Luxembourg, comme d’autres juridictions européennes d’ailleurs, va certainement profiter dans les années à venir de retombées liées à des investissements et opérations qui auraient normalement été confiés à Londres.

Selon S&P, le Luxembourg est une des économies les plus exposées aux répercussions ayant trait aux échanges commerciaux et à la migration

Toutefois, toute médaille a son revers. Selon Standard & Poor’s, le Grand-Duché est une des économies les plus exposées aux répercussions relatives aux perturbations des échanges commerciaux et des flux migratoires liés au Brexit, en raison notamment du nombre conséquent de transactions entre les deux places financières ainsi que du niveau d’exportation des biens et services luxembourgeois vers le Royaume-Uni.

Un rapport de la fondation allemande Bertelsmann Stiftung a évalué la perte des revenus auxquels Luxembourg aurait dû faire face cette année, en cas de Brexit sans accord, à 127 millions d’euros. Rapporté à la population du pays, cela représente un montant de 220 euros par habitant. Notons que la perte pour les résidents britanniques serait bien plus conséquente, puisque évaluée à 875 euros par habitant.

Malgré la décision de reporter la date limite du Brexit au 31 octobre, ce risque de préjudice économique demeure pour l’avenir, à moins qu’un accord de sortie ne soit conclu.

De manière générale, au sein de la communauté financière luxembourgeoise et dans les sphères dirigeantes du pays, de nombreuses personnalités considèrent le Brexit comme une perte globale pour le Grand-Duché. En effet, une grande partie des activités liées à l’industrie des fonds d’investissement découle directement des relations que la place financière luxembourgeoise entretient avec la City. Le Brexit risque de rendre ces relations bien plus complexes.

Dans les jours, semaines et mois à venir, Luxembourg pourrait faire face à un véritable séisme politique et économique, sans doute plus conséquent pour ce pays que ce qu’a pu représenter la chute du rideau de fer et de l’Union soviétique..

Les responsables de la place financière craignent notamment l’émergence de nouvelles restrictions et un renforcement du contrôle de l’Union européenne en matière de délégation de l’activité de gestion d’actifs vers des pays non européens, comme pourrait le devenir le Royaume-Uni. C’est un enjeu réel, et ce malgré l’assouplissement récent d’un projet de la Commission européenne qui prévoyait le transfert des pouvoirs des régulateurs nationaux vers l’autorité européenne de supervision des marchés financiers (ESMA).

Au-delà, avec le Brexit, le Luxembourg perd un allié puissant au cœur des délibérations menées au niveau de l’Union européenne. Le Royaume-Uni était un soutien fort du Luxembourg dans la défense du modèle d’ouverture des frontières et de libre-échange économique. Le Luxembourg peut davantage craindre que des barrières protectionnistes s’élèvent à nouveau en Europe, menaçant la croissance de l’industrie financière paneuropéenne. Le renforcement des mouvements populistes et la tendance à un plus grand protectionnisme dans de nombreuses régions du monde n’augurent en effet rien de bon.

Dans ce contexte, le Gouvernement, le Parlement et les régulateurs luxembourgeois ont fait de leur mieux pour protéger le pays et son secteur financier face à un risque de Brexit chaotique. Est-ce que cela sera suffisant ? Difficile à dire pour le moment. Dans les mois à venir, Luxembourg pourrait en effet devoir faire face à un véritable séisme politico-économique, peut-être plus conséquent pour ce pays que ce qu’a pu représenter la chute du mur de Berlin et l’effondrement de l’Union soviétique.

L’environnement économique et politique relativement stable du Luxembourg, qui lui a permis de prospérer considérablement au cours des dernières décennies malgré les crises, risque de disparaître à jamais. Il est désormais l’heure de boucler la ceinture, car nous partons en voyage vers l’inconnu.

A lire: LËTZEBUERGER JOURNAL – Petite mise au point

Proposed AIFMD marketing regulation could make life easier for alternative fund industry

Alternative fund managers in Europe and outside appear poised to win greater flexibility on early-stage marketing to professional investors, despite dissatisfaction with the first draft of EU legislation to amend the 2011 Alternative Investment Fund Managers Directive.

In March, the European Commission published a proposed directive amending EU regimes that regulate cross-border distribution of retail and alternative investment funds. The law is a key element of a legislative package advancing the Commission’s Capital Markets Union project, which also includes a prospective regulation intended to facilitate cross-border fund distribution.

At first, the Commission’s proposals to amend the AIFMD alarmed the fund industry, which feared they could make marketing more difficult in several major European markets.

However, following the drafting of a revised version of the legislation by the EU Council, comprised of member states, it now appears that alternative fund managers in Europe and elsewhere will win the greater flexibility they seek in early-stage marketing to professional investors. 

The proposed legislation defines and sets rules on ‘pre-marketing’ activity: gauging interest from potential investors before a fund has actually been established while avoiding the full disclosure and administrative rules the directive requires for fully-fledged fund marketing. 

This process enables managers to refine their investment offerings and terms, or even abandon projects if they fail to generate market enthusiasm.

What would change

The original AIFMD defines marketing but makes no mention of pre-marketing, leaving it to member states to choose whether or not to authorise it at all. Regulators including Luxembourg’s CSSF and the UK’s Financial Conduct Authority have done so, but other member states treat any initial contact with a prospective investor as marketing. 

In its proposals, the Commission was aiming for pre-marketing to be permitted throughout the European Economic Area – the EU plus other counties that follow its single market regime – but under uniform rules.

While the March proposals would liberalise the rules for fund managers in countries where pre-marketing is now barred, they would impose new constraints in other states. 

Most notably, they forbid the provision of offering documents or limited partnership agreements, even in draft form, to potential investors. Otherwise, the AIFMD’s full requirements governing marketing would be triggered.

Industry critics protested that the rules would prohibit established practice in the alternative investment industry. This applies especially to funds structured as limited partnerships, often the result of long negotiations between managers and cornerstone investors – whose commitment is essential to the project.

They also noted that the EU’s (now-superseded) Prospectus Directive governing the offering or listing of securities permits the circulation of draft prospectuses to professional investors. 

In some cases, critics argued, the proposed directive could force managers to comply with marketing passport conditions even before a final decision to establish a fund had been reached.

Responding to industry complaints

The revised draft issued by the EU Council on June 15 is viewed by analysts as far closer to the more liberal interpretation of the marketing requirements prevalent in the union’s leading asset management and fund service jurisdictions.

The changes would permit alternative investment fund managers (AIFMs) to explore the market of prospective investors, including by circulating draft fund documents until they are finalised before a launch. 

Investors would not be able to invest in the prospective fund at this point, and no subscription documents would be available. AIFMs would be required to document details of their market-testing activities and be prepared to supply them to regulators.

Under the Council’s amendments, any subscription to a fund within 18 months of pre-marketing that either referred to the fund, or was established as a result of pre-marketing, would be treated as a product of marketing and subject to notification or authorisation procedures – depending on the AIFM’s volume of assets under management. 

That rule would prevent managers from using pre-marketing to obtain reverse solicitation, where participation in the fund takes place at the investor’s initiative and is thus not subject to the directive’s rules on marketing.

The Council draft also would ease a proposed requirement that managers offer to repurchase shares or units from local investors in jurisdictions where they wish to discontinue marketing their funds. 

Notably, closed-ended funds are exempted from the repurchase obligation.

While the directive next faces negotiation between the Council and the European Parliament, alternative fund managers are now confident that established practice for dealing with key investors is less likely to be overturned as part of a well-intentioned liberalisation measure.