Nordic countries have regulated marketing to non-professionals differently
Notably, the AIFM Directive regulates marketing to professional investors only. Each EU/EEA country could themselves choose how to regulate marketing to non-professionals. They did it differently.
Following the implementation of the AIFM Directive into law, many countries addressed separately the question of how to market to non-professional investors. Looking only at Norway and Sweden in this article, the common requirements are that the AIF-manager:
1. must be licensed by Finanstilsynet or Finansinspektionen.
2. must apply and obtain regulatory approval for the fund marketing effort. Unless otherwise accepted, the marketing documents must be written in Norwegian or Swedish and separate key information must be provided.
3. is required to document a thorough assessment of the investor and the suitability of the fund as an investment for the investor.
In addition, Swedish AIF managers must ensure that the fund is listed at a stock exchange. This is meant to ensure “liquidity” in AIF shares which are otherwise notoriously illiquid binding shareholders to the investment for many years. It is however, quite expensive.
Sweden, and the rest of Europe, has introduced EuVECA
At the time of the AIFM Directive, EU also introduced the “lighter” EuVECA regulation aimed at managers of venture capital funds (or more precisely funds investing in the SMB market). The main requirements for legally reaching out to “semi-professional” investors for EuVECA funds are:
1. The EuVECA manager must be registered (not licence approved) by the local FSA.
2. The investors must invest the equivalent of at least EUR 100,000 in the fund.
3. The investors must sign that they understand the risks in investing into the venture fund.
The EuVECA manager may market across Europe. The regulation of these “semi-professional” investors is lighter than under AIFMD and it is common across the EU countries. Regrettably, Norway has not introduced EuVECA and this alternative is not available for Norwegian fund managers.
Different requirements in the Nordic countries
Specific requirements or not yet -implemented legislation are limiting the opportunities to reach non-professional and semi-professional investors in the Nordic countries.
The stricter Swedish rules have left the AIF-fund investment opportunity almost dead in Sweden for non-professional investors. In itself a pity as the Swedish non-professional investors are left with less investment opportunities than their Nordic non-professional neighbours. In Norway, not having implemented the EuVECA is a hindrance for Norwegian fund managers wish to target “semi-professional” investors.
A more severe consequence, is that the Nordic countries are not functioning sufficiently as one market for funds, fund managers and investors despite the fact that Nordic countries are
* financially stable
* well-regulated financial markets
* enjoy a high standard of living and have a large number of non-professional investors
* have realised strong and stable economic growth over many years
A Nordic harmonising of the regulations to be able to invite non-professional investors to co-invest in AIF-funds and Venture Capital funds should be possible and encouraged – it’s up to the Nordic politicians to decide.
How do fund managers solve the barrier of misaligned rules for marketing towards non-professional or semi-professional investors?
1. Some fund managers define their investments projects as being “syndicates” rather than alternative investment funds, and avoid the AIF-regulation.
2. Other fund managers define the non-professional investors as “professional” through a procedure of “opting up” (lifting up) the non-professional investors to become classified as professional investors. This is done in accordance with current regulation, but one may question whether or not all such investors could and should be accepted to fulfil the relevant criteria for such categorisation.
3. Some managers decide to only invite professional investors, leaving no investment opportunities for the non-professional investors.
The practise we observe is easy to understand, though possibly not in all cases fully in line with the original intentions with the AIF and venture legislations.
A challenge for Nordiskt Samarbete/Nordisk Råd («The Nordic Cooperation»)
Permian would have liked to see that The Nordic Co-operation makes an initiative to harmonise the local AIF and VC legislation in the Nordic countries. The benefits for investors, fund managers, Nordic capital markets and entrepreneurs are obvious; they may more easily obtain financing, lower funding costs and therefore the potential for lower fees will improve returns.
A fund hotel may solve the challenge
Permian through its license sharing fund hotel solution offers an alternative for AIF fund managers to establish AIF funds that reaches out to all categories of investors, including non-professional and semi-professional investors. The fund will be a licensed entity which solves some of the problems presented in this article.
Questions may be directed to the CEO Ben Guren of the Permian group (click here)