Fund managers that choose to make use of recent regulatory reforms in the US that allow private fund managers to widely advertise their funds to the public should be careful not to fall foul of stricter EU marketing rules, warn legal sources.
In July, the US Securities and Exchange Commission voted to lift the general solicitation ban under Regulation D. The reforms, which come into effect later this month, represent a risk to other jurisdictions due to the nature of modern electronic communications, online marketing methods and media coverage. Legal experts are concerned communications in the public sphere are too difficult to control in a way that does not break marketing rules outside of the US.
Multiple sources pointed to the Alternative Investment Fund Managers Directive (AIFMD), which among other things regulates fundraising, as a spanner in the works for any mass marketing efforts. “AIFMD is almost the antithesis of Rule 506(c); at present, we don’t expect them to live well together,” said Julia Corelli, funds partner at Pepper Hamilton.
By 2015, the AIFMD will require all EU-based GPs to become authorized by their home state in order to market to sophisticated investors freely throughout Europe.
George Raine, a regulatory lawyer with Ropes & Gray, said it remains to be seen how the two pieces of law will co-exist with one another. “The JOBS Act rules just got passed recently and haven’t even gone into full effect. No one has a compliance program to deal with it yet so no one really knows what it looks like in practice.”
“Websites may need two investor portals to ensure that EU investors cannot access information that could be considered marketing under the AIFMD,” added Corelli.
One compliance officer, whose funds are marketed both in the US and in Europe, said that the Reg D reforms to him are primarily protection for staff marketing in the US. “What general solicitation will do for us is that if somebody is giving a view or talking with a potential investor, and slips up, we have a bit more protection there. We are not going to go and market on the outside of buses or billboards.”
The compliance officer added that the firm had recently completed a website revamp so existing investors have a page where they can log-in and access information the public cannot. “Right now our website is really geared toward companies who may be interested in contacting the firm,” he said.