Last month, KPMG in the US hosted more than 60 US-based fund managers at a seminar in New York to discuss AIFMD for non-EU managers. In addition, the KPMG panel speakers visited 12 fund managers to discuss specific challenges and opportunities in accessing European investors. Some of the world’s largest funds were represented; many of these managers have significant existing investors or products in the EU. Not surprisingly, the sessions were lively and highly informative for those both inside and outside of the EU.
The reverse-solicitation illusion
What emerged was that most US-based managers are confused about how best to access EU investors post-AIFMD. Many US managers still believe that they would be able to leverage the reverse solicitation exemption to sustain their strategy; however, once management fully understands the potential risks of a reverse solicitation strategy, we note an evolution in thinking away from reverse solicitation.
What many didn’t fully recognize was that the reverse solicitation rules would not only apply to their future EU marketing models, but potentially their ongoing communication with existing investors, as well. Worse, if ongoing communication with existing EU investors is considered marketing, than that may be considered to be a new activity requiring a notification or registration. This is a topic which needs to be closely examined. Clearly, reverse solicitation represents a slippery slope rather than a reliable strategy.
Private placement or full substance?
Another strategy the majority of managers are exploring is simply to continue relying on private placement regimes. While there is some merit in this strategy for those managers with investors in only one or two jurisdictions, there is an evolving recognition that adhering to multiple, non-aligned placement regimes could be a complicated process that would ultimately reduce efficiency and drive up costs.
It is also clear that only a select few US-based managers were putting substantive operations in Europe in order to apply to become an EU alternative investment fund manager (AIFM). Those that were following this strategy tended to be among the largest managers with a large and diversified pool of resources to commit to this endeavor.
Waiting for clarity
As a result, what we found was that most managers are taking a wait and see approach; exploring the options and reading the text of the regulation and guidance, but making no significant strategic decisions until they receive more clarity ahead of July 2015.
One of the biggest challenges from US managers, however, may have less to do with the complexity of becoming an EU AIFM and more to do with their reluctance to put their remuneration practices and policies up for public debate and scrutiny. It is widely believed that the current remuneration culture of the US reinforces the entrepreneurial spirit of the sector and managers are therefore hoping (likely to no avail) that the July 2015 regulation will allow them to avoid this requirement.
Looking for a pragmatic and clear approach
EU authorities may want to take note of the uncertainty within the non-EU manager community. Many are starting to think that accessing Europe is becoming overly complicated and are considering whether to forego Europe altogether. This would be a significant loss to the European market and investor community.
Clarity and guidance on the proposed July 2015 regulation for non-EU managers would be a good start. According to the attendees at the seminar and our visits, so too would evidence that EU regulators were prepared to take a more pragmatic approach to applying AIFMD to non-EU managers.
Key take aways
Based on what we heard at our session and on our experience in the US and EU markets, we believe that – in the absence of immediate guidance from regulators – non-EU managers should immediately start considering how they might best utilize alternative approaches to accessing EU investors. Some may consider outsourcing the AIFM role; others may want to participate in a platform; regardless, it is vital that all avenues be explored and considered.
But, at the end of the day, it will all come down to the clarity, cost and complexity of the July 2015 regulation. And the attendees of our session would clearly appreciate more guidance… and soon.