Fund Marketing in Germany: How new legislation impacts pre-marketing and reverse solicitation

On 20 January 2021, the German government published the draft bill of an Act to strengthen Germany as an investment fund location – Fondsstandortgesetz (FoG) (the Draft Bill). Among a number of changes to the German Capital Investment Code (Kapitalanlagegesetzbuch (KAGB)), which are aimed at improving the conditions for the establishment of investment funds in Germany, the Draft Bill also implements Directive (EU) 2019/1160 on the cross-border distribution of collective investment undertakings. While Directive (EU) 2019/1160 requires Member States to allow pre-marketing for AIFs, it introduces several restrictions for early-stage investor communication which is common in the funds industry.

The German government states that the Draft Bill is intended to transpose the requirements of the Directive (EU) 2019/1160 without deviations. The most important points to note are as follows:

• Pre-marketing will be permitted for AIF which are only available to professional and semi-professional investors in the EEA (Spezial-AIF or “special AIF” ), however subject to certain limitations on the information which may be provided. Pre-marketing will be subject to a licensing requirement, as only CRR credit institutions, AIFM, UCITS management companies, investment firms, and tied agents will be permitted to undertake pre-marketing. The Draft Bill introduces certain notification requirements vis-à-vis regulatory authorities upon the commencement of pre-marketing.
• A central aspect of the new rules is to prevent that fund units are acquired by investors by means of pre-marketing if the funds have not been properly notified for distribution. For that reason, within 18 months from the commencement of pre-marketing, any subscription of an AIF which (a) was mentioned in information provided through pre-marketing or (b) was established and registered as a result of pre-marketing, is deemed to constitute the result of marketing and is therefore subject to the standard marketing rules.
• As regards Germany, this new mechanism would substantially change the regulatory treatment of pre-marketing practices by EU AIFM as well as third country AIFM in the field of special AIFs. According to BaFin’s current administrative practice, pre-marketing is to a certain extent permissible and, under certain circumstances, the subsequent acquisition of units or shares of AIF is possible without applying the marketing provisions.
• According to the legislator, the introduction of rules on pre-marketing shall not affect the recognition of reverse solicitation. However, it is not entirely clear how reverse solicitation will be treated if it occurs during the above-mentioned 18 months period.

For more details on the new German pre-marketing rules and their potential impact on the recognition of reverse solicitation, please refer to our client briefing which can be accessed below.