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Reverse Solicitation - A legal analysis of marketing of Alternative Investment Funds and Shipping Investments

Sölvell, Christian LU (2018) JURM02 20181
Department of Law
Faculty of Law
Abstract
In 2011, a new EU Directive for Alternative Investment Fund Managers came into force. Following the financial crisis in 2008, it had been evident that Alternative Investment Fund Managers had been exposed to severe risks without sufficient regulation.

While the Directive has taken some time for Member States to implement through national legislations, it can be considered to have been largely successful. However, as is often the case with Union-wide legislation, some legal situations are still not clearly regulated. For instance, when marketing an Alternative Investment Fund, fund managers have the option to either obtain a marketing “passport”, or to rely on so-called reverse solicitation. The latter refers to investors themselves... (More)
In 2011, a new EU Directive for Alternative Investment Fund Managers came into force. Following the financial crisis in 2008, it had been evident that Alternative Investment Fund Managers had been exposed to severe risks without sufficient regulation.

While the Directive has taken some time for Member States to implement through national legislations, it can be considered to have been largely successful. However, as is often the case with Union-wide legislation, some legal situations are still not clearly regulated. For instance, when marketing an Alternative Investment Fund, fund managers have the option to either obtain a marketing “passport”, or to rely on so-called reverse solicitation. The latter refers to investors themselves seeking funds to invest in, rather than the fund being marketed. The demarcation between marketing and reverse solicitation varies greatly between Member States, and fund managers often take caution in relying on reverse solicitation. This may be due to the fact that breaching of marketing regulations can lead to very different consequences in different Member States, from fines to withdrawal of marketing passports and even imprisonment. Due to such severe potential consequences, this thesis has raised the question of whether individual Member States should be able to stipulate explicit punishments for non-compliance with their marketing regimes.

Furthermore, the Alternative Investment Fund Manager’s Directive and its complementing Regulations have had the objective to increase the number of opportunities for retail and institutional investors to be exposed to the Private Equity markets in a regulated environment, which has also lead to more funding for small and medium-sized enterprises. This is thought to boost interest in niche asset classes, which earlier have almost only been available to institutional investors or the public equity markets. One such asset class is that of shipping investments; both traditional in the form of ships, and more recent ventures within e.g. shipping logistics. Investments in these industries have predominantly been from investors outside the EU, where most of the ventures also have been registered. To examine whether the Alternative Investment Fund Manager’s Directive has provided a sound investment landscape for niche asset investments, this thesis has been focused on the provisions of marketing and capital raisings for Alternative Investment Funds.

The marketing provisions of the Alternative Investment Fund Manager’s Directive have also been examined through a rule of law perspective, focusing specifically on Lon L. Fuller’s fourth criterion in his principles of legality, i.e. the criterion demanding minimal clarity. Finally, the question of how to increase investments in niche asset classes throughout the EU has been raised and examined.

Due to the fact that the interest of boosting investments in alternative asset classes is arguably more important that severely regulating capital raisings, it may be considered inappropriate to explicitly stipulate penalties for non-compliance with national marketing regimes. And due to the fact that Member States have been able to regulate reverse solicitation and breach of marketing provisions in whichever way they desire, the Alternative Investment Fund Manager’s Directive may be seen as not minimally intelligible and clear on this specific topic. Finally, the interest for investments in niche asset classes could be positively affected by homogenizing the legislations on capital raisings throughout the EU, due to the fact that fund managers have tended to register theirs funds elsewhere because of different legislations within the EU. (Less)
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author
Sölvell, Christian LU
supervisor
organization
course
JURM02 20181
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
EU Law, law and economics
language
English
id
8941086
date added to LUP
2018-06-10 15:29:25
date last changed
2018-06-10 15:29:25
@misc{8941086,
  abstract     = {In 2011, a new EU Directive for Alternative Investment Fund Managers came into force. Following the financial crisis in 2008, it had been evident that Alternative Investment Fund Managers had been exposed to severe risks without sufficient regulation.

While the Directive has taken some time for Member States to implement through national legislations, it can be considered to have been largely successful. However, as is often the case with Union-wide legislation, some legal situations are still not clearly regulated. For instance, when marketing an Alternative Investment Fund, fund managers have the option to either obtain a marketing “passport”, or to rely on so-called reverse solicitation. The latter refers to investors themselves seeking funds to invest in, rather than the fund being marketed. The demarcation between marketing and reverse solicitation varies greatly between Member States, and fund managers often take caution in relying on reverse solicitation. This may be due to the fact that breaching of marketing regulations can lead to very different consequences in different Member States, from fines to withdrawal of marketing passports and even imprisonment. Due to such severe potential consequences, this thesis has raised the question of whether individual Member States should be able to stipulate explicit punishments for non-compliance with their marketing regimes. 

Furthermore, the Alternative Investment Fund Manager’s Directive and its complementing Regulations have had the objective to increase the number of opportunities for retail and institutional investors to be exposed to the Private Equity markets in a regulated environment, which has also lead to more funding for small and medium-sized enterprises. This is thought to boost interest in niche asset classes, which earlier have almost only been available to institutional investors or the public equity markets. One such asset class is that of shipping investments; both traditional in the form of ships, and more recent ventures within e.g. shipping logistics. Investments in these industries have predominantly been from investors outside the EU, where most of the ventures also have been registered. To examine whether the Alternative Investment Fund Manager’s Directive has provided a sound investment landscape for niche asset investments, this thesis has been focused on the provisions of marketing and capital raisings for Alternative Investment Funds.

The marketing provisions of the Alternative Investment Fund Manager’s Directive have also been examined through a rule of law perspective, focusing specifically on Lon L. Fuller’s fourth criterion in his principles of legality, i.e. the criterion demanding minimal clarity. Finally, the question of how to increase investments in niche asset classes throughout the EU has been raised and examined.

Due to the fact that the interest of boosting investments in alternative asset classes is arguably more important that severely regulating capital raisings, it may be considered inappropriate to explicitly stipulate penalties for non-compliance with national marketing regimes. And due to the fact that Member States have been able to regulate reverse solicitation and breach of marketing provisions in whichever way they desire, the Alternative Investment Fund Manager’s Directive may be seen as not minimally intelligible and clear on this specific topic. Finally, the interest for investments in niche asset classes could be positively affected by homogenizing the legislations on capital raisings throughout the EU, due to the fact that fund managers have tended to register theirs funds elsewhere because of different legislations within the EU.},
  author       = {Sölvell, Christian},
  keyword      = {EU Law,law and economics},
  language     = {eng},
  note         = {Student Paper},
  title        = {Reverse Solicitation - A legal analysis of marketing of Alternative Investment Funds and Shipping Investments},
  year         = {2018},
}