Reverse solicitation (or passive marketing) – where a fund manager responds to a genuinely unsolicited request for information that is made at the initiative of a prospective investor – does not constitute “marketing,” meaning that the fund manager does not have to comply with the rules constituting the national private placement regimes or the Alternative Investment Fund Managers Directive (AIFMD).
However, like “marketing,” reverse solicitation is defined differently in each European jurisdiction. Furthermore, it is defined narrowly in most, so should be relied upon with caution.
Impact of 'brand' marketing
As a general rule, “brand” marketing – where a fund manager provides general information about itself without providing information on any funds that are or will become open for investment – will not constitute “marketing.”
However, a fund manager should take care where brand marketing is not in the ordinary course and takes place during (or in the run up to) fundraising for a particular fund product, because such brand marketing may prejudice a fund manager’s later reliance on reverse solicitation.
A practical application
AIFMD marketing rules apply per fund vehicle (that is, to each feeder fund, parallel fund, main fund, etc.) and therefore a private fund manager making a marketing notification or receiving a marketing approval in a European jurisdiction must be undertaken on a fund vehicle by fund vehicle basis.
When a non-European fund manager considers establishing a multiple investor co-investment vehicle, there are a number of European marketing considerations that may need to be addressed:
1. If participation in a co-investment vehicle will be offered to European co-investors, subject to paragraph (2) below, the offer likely will constitute “marketing” and the rules constituting the national private placement regime in each relevant European jurisdiction will need to be complied with. The practicalities of compliance may prove to be impossible, particularly in those jurisdictions where a marketing approval must be obtained.
2. If participation in a co-investment vehicle will be offered to European co-investors that are existing investors in an established fund (or the “main fund”), it may be possible to rely on reverse solicitation as a mechanism to offer participation in the co-investment vehicle to those European co-investors that have provisions in their main fund side letters indicating their interest in future co-investment opportunities.
3. The AIFMD does not apply to a non-European fund that completed European marketing before July 22, 2013 (an “out-of-scope fund”). However, if a co-investment vehicle is established to invest alongside an out-of-scope main fund and participation in it is offered to European co-investors, in some respects the out-of-scope fund will be impacted by the AIFMD. The most obvious impact will arise where the co-investment opportunity is in respect of a European portfolio company and the co-investment vehicle is subject to the AIFMD notification rules and “no asset stripping” provisions in respect of that European portfolio company.
In summary, reverse solicitation under AIFMD should be relied upon with caution, but in a number of circumstances may be the only possible route for US and other non-European fund managers to raise European investor capital.
Sally Gibson is international counsel in the London office of Debevoise & Plimpton. A complete version of this article originally appeared in the Spring 2015 issue of the Debevoise & Plimpton Private Equity Report.