UK softens position on reverse solicitation

The FCA toned down its approach to regulating reverse solicitation under the AIFMD, but market sources say relying on investors to make the first move still comes with a degree of risk.

Some GPs marketing in the UK, will be able to bypass the onerous Alternative Investment Fund Managers Directive (AIFMD), when accepting commitments from investors they have a history with so long as the limited partner was the one to initiate contact. 

Previous guidance from UK securities regulator the Financial Conduct Authority (FCA) suggested that reverse solicitation was only permitted when an LP initiated contact regarding a potential commitment, had no previous relationship with the GP, and had not learned about the fund from what was made publicly available on a website. 

In recent guidance the FCA also said it would accept written confirmation from an investor as proof  the commitment was made at the LP's initiative. The regulator warned firms it would investigate further if it believed a GP was using reverse solicitation to circumvent the AIFMD. 

Legal sources caution it is not entirely clear what marketing practices or actions may arouse the suspicions of the FCA when relying on reverse solicitation.  

Firms will need consider their overall contact with investors rather than just having them sign a piece of paper confirming it was at their initiative to invest, said one UK-based private equity lawyer. 

For GPs relying on reverse solicitation, the lawyer said ideally an investor initiates the relationship with a firm and then formally requests the private placement memorandum and offering documentation. He added firms should document the investor's request for marketing literature, and should the investor subscribe, document again it was the investor who commenced the commitment. 

For investors that are existing contacts, firms will need to have them reconfirm it was at their initiative to continue the relationship, the lawyer added.