Alternative Investment

US Alternative Fund Managers Eye Europe For Capital

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The firm says that US managers are increasingly interested in distributing funds and raising capital in European Union hubs such as Luxembourg and Ireland, although a few challenges remain.  


A growing number of US fund managers are setting up fund
structures in Europe. Luxembourg is their favoured jurisdiction,
while Ireland will grow more popular, according to Ocorian, a corporate,
fiduciary services and capital markets firm.


US managers have been challenged by the European Union’s
regulatory landscape, for example, by the Alternative Investment
Fund Directive (AIFMD) regime, which became law in 2013. Although
US fund managers know US rules, as far as the European Union is
concerned, it is not “one market” even though AIFMD creates a
“level playing field,” Ocorian said.  


“There’s 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,
investment, exits, and performance across many asset classes,”
Marc van Rijckevorsel, head of business development for corporate
and fund services, Americas, said. 


“There is clearly strong demand for raising and investing
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 GCC
region, who have capital to deploy and are interested in
identifying specialist fund managers,” he said. 


Ocorian also argues that Ireland – another EU member state – is
becoming increasingly important as a destination for US fund
managers because of structure changes to Ireland’s investment
limited partnership regime that took place in February. The
previous framework hadn’t changed for 25 years. Coinciding with
amendments to the ILP legislation, the Central Bank of Ireland
also updated its rules for closed-ended funds so that they can
use the type of private equity terms expected by investors and
managers.


Among the firms operating such funds in Europe are Dodge &
Cox, a San Francisco-based fund manager, Calamos Investments,
Matthews Asia, American Century Investments, Loomis Sayles,
Brandes Investment Partners and Pzena Investment Management.


AIFMD pre-marketing rules

Ocorian noted that under AIFMD, new rules for overseeing
alternative investment funds came into force on 2 August. 


The rules guide firms on how to manage pre-marketing activities
across the EU, whereas before there was no legal framework.
Previously, any activity that could be considered as
pre-marketing was not defined in the original AIFMD and was left
to the rules of the individual EU member states – a potentially
confusing situation. 


“US fund managers can test whether there is appetite for a fund
strategy, and there is a process for doing that without having to
set up a fund structure from the start,” the firm said.


“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 do the pre-marketing notification to local regulators.
If there is little appetite, the manager can stop pre-marketing
and they are not obliged set up a fund or incur many costs.
There’s now more clarity about that process,” it added.


In the past, US fund management firms have been deterred by what
they regarded as a tough and expensive European regulatory
landscape.


On a separate but related front, wealth managers and other
financial groups have been buying managers of private market
investments, seeking to tap into this expanding field. For
example, in May Franklin Templeton agreed to buy Alcentra, the
European credit manager, from BNY Mellon for up to $700 million.

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