New pre-marketing rules for alternative investment fund managers

The new pre-marketing regime, which is based on Directive (EU) 2019/1160 of the European Parliament and of the Council of 20 June 2019 amending Directives 2009/65/EC and 2011/61/EU with regard to cross-border distribution of collective investment undertakings (the "Cross-Border Directive"), allows an EEA licensed AIFM to perform activities that fall within the definition of pre-marketing for purposes of gauging investor interest in a new AIF without having completed the passporting procedure for marketing with the Danish FSA.

The pre-marketing regime is not a substitute for compliance with the normal passporting procedure. Accordingly, if the AIFM - based on the investor interest uncovered as part of the pre-marketing process - decides to move into active marketing where investors are ultimately offered to commit to a new AIF, then the AIFM must first establish and passport the AIF for marketing with the Danish FSA.  

Pre-marketing means the provision of information or communication, directly or indirectly, on investment strategies or investment ideas by or on behalf of an AIFM to potential professional investors in Denmark in order to test their interest in an AIF or a compartment (sub-fund) which is not yet established, or which is established, but not yet passported for marketing with the Danish FSA, and which in each case does not amount to an offer or placement to the potential investor to invest in the interests of that AIF or compartment (sub-fund).

In order to rely on the pre-marketing regime, the AIFM may not present information to the prospective professional investors which:

a) is sufficient to allow investors to commit to acquiring interests in a particular AIF;

b) constitutes subscription forms or similar documents whether in a draft or a final form; or

c) constitutes constitutional documents, a prospectus or offering documents of a not-yet-established AIF in a final form.

Where a draft prospectus or offering documents are provided to prospective professional investors, such documents may not contain information sufficient to allow investors to take an investment decision and the documents must clearly state that: 

a) they do not constitute an offer or an invitation to subscribe for interests in an AIF; and 

b) the information presented therein should not be relied upon because it is incomplete and may be subject to change.

Neither the pre-marketing activities nor the prospective investors to whom the activities are directed are notifiable to the Danish FSA

Whereas the intention of this new regime is to improve competition within the EU by making it easier for AIFMs to provide professional investors with attractive investment opportunities on a cross-border basis, the new rules also represent a narrower scope for pre-marketing than the existing Danish pre-marketing regime.

The existing pre-marketing regime in Denmark (based on the Q&A guidance of the Danish FSA) allowed for both Danish licensed and sub-threshold AIFMs and for non-EEA AIFMs to rely on the pre-marketing rules. This will no longer be possible with the new rules, which can be applied only by AIFMs licensed in Denmark or another EEA Member State. Furthermore, pre-marketing activities aimed at semi-professional investors will no longer be permitted.     

Especially the fact that US, UK, Swiss and other non-EEA AIFMs will no longer be permitted to rely on the pre-marketing rules may cause some AIFMs to exclude Denmark from the list of jurisdictions where they will seek funding. This is hardly in the interest of the many large, limited partners (namely pension funds and other institutional investors) that regularly invest in AIFs domiciled and managed outside the EEA and which rely on a continuous flow of sourcing of investment opportunities. 

At the other end of the spectrum, small sub-threshold AIFMs may have their fund raising for e.g., a first-time fund delayed (until registration with the Danish FSA), because they can no longer apply the pre-marketing rules.