A well planned and co-ordinated effort often leads to better and more time and cost-efficient results.
Soliciting investors is usually a highly regulated activity in any given jurisdiction. There may be rules around specific claims that can or can't be made, requirements around how returns are presented, which type of investor can or can't be solicited based on the fund's strategy, all of which can differ in each jurisdiction. For each fund type, there is generally a definition of who is an eligible investor, but again this differs in each jurisdiction.
In many jurisdictions around the world, before fundraising can even begin, specific regulatory licences and documentation are required and these should be identified - well in advance of any actual fundraising.Third party providers can advise on which regulations apply, in which jurisdictions - and crucially, on the quickest and most cost efficient ways to proceed, including advice on how to obtain marketing passports wherever possible.
For example, qualifying managers who fall under Gen II's regulatory umbrella can begin fundraising and marketing across the EU or in certain jurisdictions more quickly and cheaply, than applying and waiting for an individual licence. Whilst a licence may still have to be obtained, time is of the essence and managers usually seek out a more cost and time effective start to their fundraising activities.
Managers need to ensure staff involved in fundraising are using materials with the correct disclaimers in each of the jurisdictions in which they are raising funds.
Further, keeping records of fundraising and other promotional activity is important, such as records of all investors who were approached and records of all publications in which the fund or manager was promoted. This activity allows managers to provide evidence that it has complied with all applicable regulations and laws.
All activity involving a fund's promotion and marketing is likely to be carefully regulated in the jurisdiction the manager is targeting. Knowing the rules is important as the penalties for breaking them, even inadvertently, are prohibitive and could incur regulatory consequences (such as the loss of authorisation) civil proceedings (such as the payment of damages) or criminal prosecution.
Managers should identify which jurisdictions and investor types the fund is targeting, then identify all the accompanying regulatory hurdles and conditions that need to be fulfilled before the actual fundraising will begin.
This is one of the best-known pieces of regulation imposing rules on managers marketing into the European Economic Area (“EEA”) and is the directive with perhaps the biggest impact on all alternative managers and their prospective investors.
The directive entered into force in 2011 and created a comprehensive regulatory and supervisory framework for the management and marketing of alternative investment funds (“AIFs”) in the EEA. Whether this regulation applies is determined by the domicile of the fund and the location and regulatory status of the manager. Should the Directive apply, it enables alternative fund managers to manage and market their funds more easily throughout the EU, by obtaining a cross border “marketing passport.”
Where applicable, Gen II makes it easy for its clients to obtain the right to market within the EU and to comply with AIFMD as well as other rules and regulations.
These activities are not core to an asset manager’s day to day of managing investor capital and can become a distraction. For example, Gen II handles:
AIFM Services
Depositary Services
EUVeca Services
The effect of Gen II's offering is to allow managers to access the EU market quickly and in a cost-effective manner, without the need to qualify as an AIFM in their own right or build the requisite operational infrastructure in order to do so.
Can asset managers “pre-market” a fund – that is, approach professional investors before it has been established, or after it has been established but before it has been notified for marketing to the relevant EU member state regulator? There are now specific, rules amending the AIFMD pertaining to this.
EU domiciled Alternative Investment Fund (“AIF”) managed by an EU Alternative Investment Fund Manager (“AIFM”) will have to comply with these revised pre-marketing rules.
Broadly, some of the highlights include:
There are specific conditions for pre-marketing;
There is now a requirement on EU AIFMs to notify the relevant home member state regulator of pre-marketing activity;
There are potential restrictions on the reliance of “reverse solicitation” arguments;
There are new rules for the discontinuation of marketing of an EU AIF.
Once again, Gen II makes it easy for its clients to stay compliant and up to date on regulatory changes. For example, Gen II would handle the necessary filings and notifications to the relevant regulatory authorities to ensure compliance.
There are a number of typical documents that will be required for regulatory or fund-specific reasons, and the main documents are discussed below.
Fund documents are legal documents, so legal advice should be sought to ensure the correct documents are supplied in the appropriate manner for the specific jurisdiction the fund is being marketed. Third parties should audit the information presented within, such as relevant past performance, to ensure it is accurate.
Prospective investors will want to see draft versions of documents establishing the fund, for example, a Limited Partnership Agreement, Management Agreement and subscription documents. These documents may also be subject to local laws specifying their structure and / or content.
Smaller funds may use term sheets, others will collect information pertaining to the fund and its manager within a larger document, the PPM.
It is usual for the PPM to outline, amongst other things:
Summary of Terms.
Investment strategy, including scope, policy, criteria, borrowing guidelines and ESG policy.
Risk factors.
History of the manager including any prior track record, biographies of staff and other company information relevant to prospective investors.
Fund structure and other legal information relating to procedure for conflicts of interest, the powers and of the manager, manager removal, indemnifications and so forth.
Terms of the fund and policy regarding new funds.
Tax structure.
Regulatory disclosures.
Marketing restrictions.
Reporting, including frequency, key reports produced, valuation policies and so forth.
Confidential and proprietary information relating to the unique selling points or strategy of the fund, including potential future investments.
Use of proceeds.
Description of securities invested in.
Subscription procedures, should an investor wish to make an allocation.
Appendix of supplementary information including full data sets, legal or technical documentation and so forth.
Once again, these documents may be subject to local laws specifying their structure and / or content.
Fundraising teams need supporting materials to help them sell a fund. Help with understanding what your unique selling points are, then articulating them across your marketing materials in a way that would appeal to prospective investors, can really help make a manager standout in selection processes, which are usually repetitive and time consuming for the investor. Standing out and being memorable is therefore important.
Having a website, logo, company LinkedIn account, electronic and hardcopy brochures and a professionally designed pitch deck all add credibility to your offering.
Any information presented to investors will be subject to national or supranational regulations and legal advice should be sought. These rules tend to govern the type and accuracy of the information contained within the documents.
The right proactive publicity campaigns can also be beneficial, helping you get your message out to the investor community, such as through PR, reputation creation and protection, advertising, social media, email campaigns and so forth.
An example programme may include:
Announce your launch: a press release announcing the launch to the relevant investor press.
Promote your thought leadership: Guest articles and broadcast appearances, promoting the fund's core subject matter in an educational, rather than promotional, manner will ensure you remain visible and top of mind to investors and their advisers.
Keep your website up to date: A calendar of blog content, corporate news (such as new hires) and fund updates (such as new allocations) for your own website.
Maintain a presence on social media: LinkedIn is one of the most effective ways to garner new business leads, either by reaching out to make a new contact or to help solidify a new relationship by “linking in.”
Gather an email database of interested parties: Investors may not have an immediate need for your fund in their portfolio – but they may do in the future. Maintaining habitual email contact is part of being top of their mind when that need arises.
Go to events and host your own: Conferences can be worth attending to meet investors, whilst putting on own events allows you to stay in touch with interested prospective investors and add value to their understanding of your asset class.
These activities are often outsourced to a professional agency who can focus on performing these tasks on an ongoing basis.
There are very few, if any, conversations happening between managers and prospective investors that do not include ESG. Frameworks for sustainable investing have been published for most asset classes by their respective trade bodies and are freely available for download. As well as having an ESG policy for your fund, investors will want to know how ESG is handled by the manager itself.