Marketing into Europe and navigating AIFMD
Being outside of the EU means South African managers are not subject to EU directives when targeting investors from the rest of the world, but there have been problems when marketing into Europe even with a structure in the EU. One major issue for funds marketing into Europe, besides choosing a jurisdiction not on the blacklist, as mentioned in the trends section, is the choice between private placement and the EU Alternative Investment Fund Managers Directive (AIFMD). While the majority of funds use private placement, some have used full AIFMD passport for selling into the EU. An issue in this regard that keeps coming up for the GPs on AIFMD, however, is lack of coherence and overly draconian provisions in terms of selling. The application of AIFMD for non-EU funds has been an issue in the market for several years.
What GPs told us about AIFMD:
“We would like to see some level of sense and proportionality for AIFMD. We are not allowed to fly to Paris or Zurich or wherever, to talk to anyone about raising funds, or we will be breaking EU law. Power balance is totally skewed against (smaller) SA funds who just want to have a speculative, fact-finding discussion.”
“We have marketed into Europe but it has not been easy. AIFMD is very disjointed and the European Supervisory Authorities do not seem to apply the rules consistently, even within the same jurisdiction. For example, we did a raise in Denmark and were asked to provide a letter from the SA regulator. The regulator told us it was the first time they had to provide such a letter, and were not sure what the ESA really wanted them to say in it. It’s so odd. Yet I am sure we couldn’t have been the first SA fund to do a raise in Denmark.”
There is clearly an opportunity to facilitate non-EU capital raising from the UK and EU here for Jersey, which literally sits between the UK and EU, and has Private Placements Agreements with both. This means that Jersey bridges the gap between the UK and the EU in this post-Brexit environment and takes any uncertainty off the table.
Jersey further provides a high degree of political and fiscal stability for investors and funds exposed to both the EU and UK. Research by Jersey Finance shows that by the EU’s own statistics, only 3% of all Alternative Investment Fund Managers are registered to market in more than three European jurisdictions. This means that 97% of all managers do not market in more than three EU countries.
If a manager is part of the 3% who market on a pan-European basis or to the retail market then they will most likely need to access EU markets via another jurisdiction under full scope of AIFMD or UCITS. But if a manager is one of the 97% who do not market so widely within the EU, then Jersey offers a quicker time to market, a more efficient and a more cost effective solution.
At the time of writing a full review of AIFMD had been launched by the European Commission on 22 October, which opened a consultation with the industry to explore a range of issues including potentially complicated delegation of fund managers’ activities.
The US and Asia’s sophisticated investor framework and Asia Region Funds Passport becoming competitive to EU Fund managers in the survey also tell us that the US and Asia’s sophisticated investor framework also make capital raising easier for South African managers in some aspects, particularly emerging managers looking to raise capital via a hub in the Caribbean for the US such as Caymans and BVI and Singapore or Hong Kong for Asia. The accelerating pace of the Asia Regions Funds Passport to facilitate selling between markets in Asia including Australia; Japan; New Zealand; The Republic of Korea; and Thailand, are also fast offering similar standards to the EU’s UCITS and AIFMD frameworks, which will further smooth the path for African funds looking to raise in Asia. However, one GP said: “we have never had a problem accessing US or Asian capital through our Jersey partnership.”