The German regulator BaFin has changed certain statements in its FAQ on the marketing of funds in Germany (“Häufige Fragen zum Vertrieb und Erwerb von Investmentvermögen nach dem KAGB”). The changes concern the distinction between activities which do not qualify as marketing and activities which qualify as marketing and therefore trigger a notification requirement.
Marketing to existing investors
What has changed?
Up to now, BaFin took the view that the provisions of the German Capital Investment Code (“KAGB”) concerning the marketing of funds in Germany also apply in cases where the AIFM offers additional fund units to investors already invested in the fund. BaFin has now changed its view in this regard and stated that offering additional fund units to investors already invested in the fund no longer triggers the KAGB provisions concerning marketing.
The change was made in light of a clarification by ESMA in its Q&A “Application of the AIFMD“ (ESMA/2016/568, Section II, Question 3), pursuant to which an EU-AIFM does not have to submit a new notification to the national competent authority if an EU-AIF decides to offer additional fund units to investors, and the offer is limited to the investors already invested in the AIF.
Even though ESMA‘s clarification seems to be limited to the question whether a new notification is required, BaFin does not distinguish between whether or not the fund concerned was already registered for marketing to German investors before.
The change in BaFin's administrative practice is of particular interest for AIFM which have not yet submitted a notification for marketing their funds in Germany. Especially non-EU AIFM often decide not to actively market their funds in Germany in order to avoid having to go through a comprehensive notification procedure with BaFin. Instead, they only accept investors domiciled in Germany if such investors have requested fund units from the AIFM on their own initiative (i.e. by way of reverse solicitation) and qualify as semi-professional investors (i.e. investors with a commitment to make a minimum investment of EUR 200,000 and sufficient experience and knowledge for an investment in the fund) or professional investors (i.e. professional clients pursuant to MiFID), because in this case the KAGB provisions concerning the marketing of funds – including any notification requirements – do not apply.
Up to now, however, such AIFM always had to make sure they did not subsequently offer additional fund units to existing German investors, for example by providing a private placement memorandum or fund prospectus or other fund-related documentation without having been requested to do so by the investor, as this would have triggered an obligation to register the fund in Germany.
In the past, further fund units could therefore only be issued to existing German investors under the conditions of reverse solicitation, i.e. if requested by the investor on the investor’s own initiative, if a marketing notification was to be avoided.
From now on, AIFM which have not yet registered their fund for marketing in Germany may offer additional fund units to German investors already invested in the fund (for example by providing fund-related marketing material) without having to register the fund in Germany.
If, however, the AIFM intends to offer units of other funds (including successor funds) to existing German investors, the KAGB provisions concerning the marketing of funds in Germany apply.
Specifying fund name in pre-marketing stage
What has changed?
Up to now, BaFin took the view that marketing activities related to a (prospective) fund fall within the scope of the KAGB marketing provisions as soon as the fund is either launched or ready for sale (which means that the fund rules are fully negotiated), or as soon as the name of the fund is already specified in marketing material. Now BaFin has stated that the use of a specific fund name still suggests the fund is already launched or ready for sale, but the AIFM has the possibility to rebute this presumption in the individual case.
The change concerns activities performed in the pre-marketing stage. Unlike before, a prospective fund may now be presented with a specific fund name to interested investors in marketing presentations and fund-related documents. The use of a preliminary project name is no longer required. However, the AIFM has to be able to demonstrate that at the time potential investors were addressed, the fund concerned was not yet launched and the fund rules had yet to be negotiated.