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Ocorian, a global leader in corporate and trust services, fund administration and capital markets, says more U.S. fund managers are looking to establish fund structures in Europe, and it expects that this trend is accentuated.
Marc van Rijckevorsel, BD Manager for Corporate & Fund Services, Americas said:
“There is currently a lot of capital available for US fund managers from investors 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 forecasting assets under management to grow from $13.32 billion today to $23.21 billion in 2026. Almost half (49%) of this 2026 figure is expected to come from private equity 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 investors. Yet, as the private equity and debt market has matured and more investors have entered these asset classes, there is a growing number of investors in Europe and the region. of the GCC, who have capital to deploy and are interested in identifying specialist fund managers.”
Ocorian says it sees an increasing number of US fund managers setting up fund structures in Europe. Luxembourg is the jurisdiction of choice as the largest hub for investment funds in the world outside of the United States. And Ireland is expected to grow in popularity, following positive changes to its Investment Limited Partnership (ILP) regime and several funds having been successfully launched.
Challenges for US fund managers
Ocorian says that the challenges for US fund managers are related to the regulatory perspective: US fund managers are very familiar with SEC regulations, but once in Europe they need to understand that they are not dealing with one market, even though AIFMD is creating a level playing field.
Ocorian says it’s also important for US managers to think about how they incorporate 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 European Sustainable Finance Disclosure Regulation in March 2021, with a second phase expected to begin. 2023.
New AIFMD regulations present challenges for fund managers on pre-market rules
The AIFMD introduced rules to regulate the pre-marketing of alternative investment funds on August 2, 2021. The benefit of this new pre-marketing guideline is that there is now guidance on how to undertake pre-marketing activities in the EU. 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.
For inexperienced US fund managers, Ocorian says there was a gap between EU jurisdictions as to what counted as pre-market, and that has now been defined. US fund managers can test whether there is interest in a fund strategy, and there is a process to do so without having to set up a fund structure upfront. 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 up a fund or incur many costs. There is now more clarity on this process.
Marc van Rijckevorsel said: “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 often an issue for US managers looking to raise funds in Europe, with managers facing different challenges in accessing investor 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.
As a fully licensed AIFM, Ocorian Fund Management can be appointed through a marketing agreement to facilitate the pre-marketing of a US fund manager’s AIF to LPs and other potential investors in the EU and UK. This ensures that when a client’s fundraising project is completed, all marketing activity has been captured and regulators will be notified. Combined with Ocorian’s AIF fund administration and custodian capabilities, it can provide a true end-to-end solution to help fund originators realize their investment strategies.
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