Although fundraising has slowed down recently, General Partners (GPs) are starting to double down on their marketing campaigns in the EU, a region many managers believe to be vastly under-tapped. While distributing private market funds into the EU can bring about greater investor diversification, it is not without its challenges, however.
This is why more firms are embracing pre-marketing, as Vincent van den Brink, Commercial Director, Luxembourg, explains.
Private markets come calling for Europe
Global fundraising conditions over the last 24 months have been tough for private market managers, largely because of the unfavourable macro headwinds, i.e. anaemic GDP growth, increasing tariff risk, high inflation, slow pace of interest rate cuts, etc., and escalating geopolitical tensions, all of which have impeded exits and distributions.
However, green shoots are slowly beginning to emerge, particularly in Europe.
“Investors in Europe have shown an increasing appetite for private market assets, including private equity, real estate, infrastructure and private debt, driven by the search for higher yields and portfolio diversification,” said van den Brink.
According to data from Invest Europe, an industry association and consultancy Arthur D Little, private equity and venture capital firms raised €59 billion in H1 2024 in Europe, a 15% year-on-year increase, but down by 28% compared to the amount raised in the second half of 2023. [1]
“Fundraising in Europe has been quite difficult for private market managers, but there is light at the end of the tunnel. We are seeing more asset managers, both non-EU and EU, launching new funds and targeting prospective investors, with a special focus on the main European economies,” commented van den Brink.
Tapping into the EU market
When distributing into the EU, private market managers can choose from one of the following options.
Firstly, they can opt for full compliance with the EU’s Alternative Investment Fund Managers Directive (AIFMD). While expensive, this approach does allow managers to market their funds across the EU-27 without impediment. Alternatively, other firms – who are perhaps reluctant to spend vast sums of money on the physical infrastructure required to become full-scope AIFMs – may decide to delegate the responsibility to a third-party AIFM ManCo, an arrangement which also lets them freely distribute their funds on a pan-EU basis.
The National Private Placement Regime (NPPR) is a popular choice for managers targeting investors located in only a handful of EU markets. While some countries do have restrictions on NPPR, it does allow managers – for the most part – to register their fund (s) in a specific EU member state (s) for purely marketing purposes.
Some managers may choose to rely on reverse solicitation, which is when an investor directly and independently reaches out to a fund promoter seeking information about a fund. This approach – while costing next to nothing – tends to only benefit larger managers who have pre-existing commercial relationships with EU investors already, while it can also be risky from a compliance perspective.
And finally, there is pre-marketing, a concept introduced under the EU’s Cross Border Distribution Directive (CBDD) back in 2021.
Pre-marketing is a technique sometimes deployed by managers to gauge whether there is any appetite amongst investors for their fund. Often, this might be a fund that does not even exist, or one that has only just been launched but is yet to gain regulatory authorisation to begin marketing. It effectively allows managers to provide prospective clients with basic information about their fund or investment ideas, on condition it does not tantamount to an offer.
Pre-marketing – do it right and do it well
An intelligent pre-marketing strategy can help private market managers raise their profiles and visibility in the EU, potentially paving the way for future fundraising success.
At a time when operating costs are rising exponentially, pre-marketing is becoming increasingly popular among private market managers.
“Pre-marketing has a number of benefits. Most significantly, it lets managers assess investor appetite and demand. Equally, managers can obtain invaluable feedback from prospective investors about their businesses, enabling them to tailor their fund structures or strategies accordingly. Through early engagement, managers can also build up relationships with potential investors, ultimately laying the groundwork for a successful fund launch,” noted van den Brink.
While pre-marketing can be an effective strategy, it needs to be executed thoughtfully.
Van den Brink noted that some EU countries have their own specific pre-marketing requirements, mainly because the CBBD is a Directive, and not a Regulation, giving member states a degree of leeway and flexibility in how they interpret the rules.
This can create complexities for early stage managers looking to pre-market into the EU.
For example, certain jurisdictions do not allow pre-marketing activities unless it is conducted through approved entities. A failure to comply with these provisions can lead to hefty penalties or restrictions on future marketing activities.
“What constitutes pre-marketing is not uniformly applied either. Some regulators may consider sharing draft documentation or initial discussions as marketing, which requires registration or notification while others may not. Registration provisions are different too across member states. Germany’s BaFIN requires firms engaging in pre-marketing to file extensive documentation and adhere to specific timelines, while Luxembourg’s CSSF has its own distinct procedures. In France, pre-marketing materials need to be translated. These differences can make navigating the pre-marketing process time-consuming and complex,” said van den Brink.
Ensuring compliance
To avoid falling foul of any rules, private market managers should carefully plan and allocate plenty of resources to their pre-marketing efforts.
“From a practical point of view, firms need to think carefully about documentation when pre-marketing. Any materials shared with prospects needs to comply with the regulatory standards, whilst also being effective in communicating the fund’s value. One way private market managers can do this is by engaging with third party providers, who can support them with the various compliance requirements,” said van den Brink.
How JTC can help private market managers
JTC is well-positioned to support private market managers when complying with the EU’s pre-marketing rules, and ensuring a smooth fundraising process through the following services:
Regulatory Guidance
- Providing expert advice on AIFMD’s requirements and local market variations.
- Assisting in the interpretation and implementation of pre-marketing rules to ensure compliance.
Operational support
- Facilitating the preparation of necessary documentation and review of marketing materials.
- Supporting the establishment and registration of any pre-marketing for your investment strategy in Luxembourg, which includes the 27 EU countries.
Compliance monitoring
- Conducting regular compliance checks to ensure ongoing adherence with regulatory obligations.
- Helping managers comply with the Pre-Marketing Directive during all their pre-marketing activities.
- Keeping managers updated on any changes in regulatory requirements that may impact their pre-marketing activities.
[1] Arthur D Little – November 2024 – Private equity H1 2024: Fundraising, investment, and exit activity remain challenging but industry sentiment shows green shoots of recovery
