How U.S. Funds Can Raise Capital Abroad Finance & Banking
US fund managers can tap into growing investor appetite in Europe and the Gulf Cooperation Council (GCC) if they can overcome regulatory and structural challenges, say Marc van Rijckevorsel and Pascal Loscheider.
Opportunities for US fund managers seeking to raise funds from European investors
There is currently plenty of capital available to US fund managers in other jurisdictions. Alternative assets surged in 2021, with record levels of fundraising, investing, exiting and performing across many asset classes. This is expected to continue, with Preqin predicting that assets under management will grow from $13.32 billion today to $23.21 billion in 2026. Nearly half (49%) of that 2026 figure is expected to be owned by capital -investment and venture capital, while the European alternatives market is expected to grow 14% year-on-year to 2026.
There is clearly a strong demand to raise and invest capital. However, historically, many US fund managers have focused on US limited partnerships. Yet, as the private equity market has matured and more investors have entered the asset class, a growing number of investors in Europe and the GCC region have capital to deploy. and wish to identify specialized fund managers.
We are seeing more and more US fund managers setting up fund structures in Europe. Luxembourg is the jurisdiction of choice as the world’s largest hub for investment funds outside the United States, followed by Ireland which can expect increased interest following positive changes to its investment fund regime. investment limited partnership (ILP).
Challenges for US fund managers
The challenges that arise are obviously related to the regulatory perspective: American fund managers are very familiar with the rules of the SEC, but once they arrive in Europe, they must understand that they are not dealing with a single market, even if AIFMD creates a level playing field.
It is also important that US managers consider how they integrate ESG principles into their operations and investment decisions. European investors and regulators are increasingly focusing on managers’ ESG commitments, as evidenced by the introduction of the EU Sustainable Finance Disclosure Regulation in March 2021, with a second phase scheduled for early 2023.
Although there is a legal framework for funds at the EU level, there is over-regulation in different EU member states, so there are different requirements for setting up funds and trust funds. marketing. This is a problem that US managers often face when raising capital in Europe for the first time. New entrants to the European fundraising market need professional guidance to navigate the process. For managers who do not have offices in the EU, we can provide a wide range of administrative, fiduciary and compliance services through our third party AIFM and management company.
New AIFMD regulations present challenges for fund managers on pre-market rules
AIFMD introduced rules to regulate the pre-marketing of alternative investment funds on August 2, 2021. The great benefit of this new pre-marketing directive is that we now have clear guidance on how to undertake pre-marketing activities in the EU. Of course, before its implementation, there were already market tests, but there was no clear legal framework. Any activity that could be considered pre-marketing was not defined in the original AIFMD and was left to the rules of each EU member state. This has now been clarified.
The new pre-marketing rules limit pre-marketing activities to certain EU regulated entities (investment firms, credit institutions, regulated AIF managers and UCITS management companies). This restriction is often a burden, as in the past, testing the interest of potential investors was mainly carried out by (unlicensed) fund initiators before engaging an EU-AIFM. However, we do offer a service where we do the pre-market notification and conduct the pre-market activities with the fund originators.
For inexperienced US fund managers, there was a gap between EU jurisdictions as to what counted as pre-market, and that has now been defined. What’s good to know is that US fund managers can test if there’s interest in a fund strategy, and there’s a process to do that without having to set up a fund structure. from the start. If a US fund manager intends to test an investment idea of an investment fund with European investors, they can appoint an EU-AIFM to make the pre-market notification to local regulators. If there is little appetite, the manager can stop pre-marketing and he does not have to build a fund or incur many costs. There is now much more clarity on this process.
The road ahead
The private equity environment continues to grow in popularity and large fund managers are constantly tapping into new investor bases. Most US fund managers are seeing increasing competition for capital and are looking to expand their investor bases in Europe and other regions such as the Gulf Cooperation Council (GCC) countries – both markets will continue to grow. present interesting opportunities.
Regulatory challenges are the biggest issue for US managers looking to raise funds in Europe, with managers facing different challenges in accessing capital and bringing their products to market. In Europe, US fund managers will benefit from working with the right service providers, be they legal advisers, placement agents or fund administrators.
Supporting fund managers to raise capital
As a fully licensed AIFM, Ocorian Fund Management can be appointed through a marketing agreement to facilitate the pre-marketing of your AIF to LPs and other potential investors in the EU and UK. United. This ensures that when your fund project is completed, all marketing activity has been captured and regulators will be notified. Combined with our fund administration and AIF depositary capabilities, we can provide a true end-to-end solution to help fund originators realize their investment strategies.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.