On 2 August 2021, a new pre-marketing regime for alternative investment funds (AIFs) promoted and distributed in Germany came into force with the Fund Domicile Act¹ making changes to the German Capital Investment Code².

The new rules implement EU Directive (EU) 2019/1160³ on the Cross-Border Distribution of Collective Investment Undertakings into German law, and they are relevant for EU and non-EU asset managers that promote and distribute AIFs in Germany. In this article, we outline these new marketing regulations and describe some practical scenarios and questions.

Pre-Marketing of AIFs – what changed?

Under the old regime, the German regulator BaFin provided some guidance as to what constitutes ‘pre-marketing’ of AIFs as opposed to ‘marketing’.

To be deemed marketing, offering or placement activities must have related to: (i) an existing investment fund; or (ii) an investment fund that is at least ready to be offered (e.g., template investment terms that still contain gaps, or other aspects that need to be negotiated are not generally considered to be marketing). Also, according to BaFin’s guidance, as a general rule, where an investment fund operates under a specific name, this indicates that the fund is already set up or is ready to be offered (although this presumption can be rebutted)’ Further, where institutional investors are actively involved in the structuring of the fund in certain situations, marketing does not take place.

As a consequence, some flexibility was provided, since any activities that did not fall under the definition "marketing" by missing the qualification aspects to be deemed ‘marketing’ according to BaFin's guidance, were not subject to a notification or registration requirement with the BaFin.

The Fund Domicile Act implemented a new regime by adopting the EU definition and rules of pre- marketing into German law. Pre-marketing is defined as:

• A direct or indirect provision of information or communication on investment strategies or concepts
• By or on behalf of an alternative investment fund manager (AIFM)
• To potential professional or semi-professional investors domiciled or with their registered office in Germany, or professional investors domiciled or with their registered office in an EU/EEA member state
• With the intention to determine their interest in an AIF or a compartment thereof that is not yet established, or established but not registered for marketing purposes
• Without, in each case, constituting an offer or placement of the units or shares of the AIF or compartment

The introduction of the new pre-marketing rules added a layer of regulation to the German regime. While any pre-marketing under the old regime was “unregulated”, if conducted following the BaFin guidance the new regime requires the observation of defined rules.

The New pre-marketing and marketing distinction

The new pre-marketing provisions differentiate between pre-marketing and marketing activities using the following three criteria. Activities are deemed to be pre-marketing (rather than marketing) if the information provided to prospective professional and semi-professional investors:

• Is not sufficient to enable investors to commit to subscribe units or shares of a particular AIF
• Does not include subscription forms or comparable documents, whether they are in draft or in final form
• Does not include constitutional documents, prospectuses or offering documents of an AIF not yet authorized in final form

Also, to be considered pre-marketing, in cases where the AIFM provides any draft prospectuses or offering documents, these documents must not contain information that can be deemed sufficient for investors to make an investment decision and must clearly state that:

• It does not constitute an offer or an invitation to subscribe for units or shares of an AIF; 
• The information presented therein should not be relied upon as it is incomplete and subject to change.
• If these requirements cannot be met, the activities are deemed marketing and the AIF must be registered for marketing in Germany.
• The new rules do not provide any further guidance as to what “sufficient for investors to make an investment decision” actually means, and how this requirement applies to such things as term sheets, slide decks, etc.

Obligations for EU AIFMs under the pre-marketing regime

Any EU AIFM must ensure that the pre-marketing of AIFs in Germany is appropriately documented, and within two weeks after the commencement of the pre-marketing activities, EU AIFMs must notify BaFin through the AIFM’s home state regulator. The same applies to German AIFMs, who must notify BaFin of any pre-marketing activities of AIFs and request that the notification be forwarded to the regulators of the EU countries in which the German AIFM performs pre-marketing activities.

Pre-marketing activities can only be rendered by the AIFM and certain third parties on behalf of the AIFM such as other AIFMs, UCITS ManCos, MiFID firms, banks as well as tied agents.

Non-EU AIFMs

Is pre-marketing registration also possible for non-EU AIFMs?

Non-EU AIFMs can perform their pre-marketing activities in Germany, but since 2 August 2021, must also register them with BaFin. The German legislator has implemented a mandatory notification procedure for non-EU AIFMs with respect to pre-marketing. There is no clear legal basis in the Directive (EU) 2019/1160 other than in recital 12, which states that “National laws, regulations and administrative provisions necessary to comply with Directive 2011/61/EU and, in particular, with harmonised rules on pre-marketing, should not in any way disadvantage EU AIFMs vis-à-vis non-EU AIFMs.” The requirement for non-EU AIFMs to register for pre-marketing in Germany could be seen as a form of “gold-plating” – on the other hand, it makes it possible for non-EU AIFMs to render any pre-marketing activities in Germany at all. Otherwise they would be limited to mandatorily register their AIFs for marketing before rendering any activities or would need to strictly rely on reverse solicitation.

As a consequence, non-EU AIFMs must also notify the BaFin of the commencement of pre-marketing of AIFs in Germany within two weeks and provide the following information: