How non-EU asset managers can raise funds in Europe

05 July 2024

Europe represents a lucrative market for investment, and asset managers outside of the EU are keen to access its potential.

However, navigating the regulatory environment and establishing a foothold can be complex.

Key strategies such as utilising parallel funds and engaging third-party Alternative Investment Fund Managers (AIFMs) provide viable pathways.

Utilising Parallel Funds to Access European Investors

Parallel funds are a strategic instrument for non-EU asset managers looking to raise capital in Europe. These funds essentially operate alongside a main fund and follow the same investment strategy but are structured in compliance with the specific regulatory requirements of different jurisdictions.

This setup allows asset managers to cater to investors in various regions without altering the core management of the fund.

Parallel fund structures are particularly advantageous because they allow for flexibility in fund distribution and can accommodate the regulatory preferences of European investors.

For instance, a US based asset manager might establish a Delaware limited partnership for US investors and a parallel Luxembourg-based SICAV for European investors.

This approach not only broadens the potential investor base but also mitigates the legal and tax complexities associated with cross-border fund offerings.

In terms of operations, parallel funds are structures which co-invest (and/or divest alongside the main fund). Each parallel structure is similar (to the extent possible) to the main fund in terms of strategy, investment policy, investment target, asset classes, and of course risk management. Parallel funds structures are also interesting for investors which have investment restriction to offshore structures.

The main distinction between the different funds would be either the tax framework (capital gains, dividend, interest, etc.) or the will of the sponsor to differentiate each vehicle based on their investors group.

Engaging third-party AIFMs: a gateway for non-EU asset managers

Another effective strategy for non-EU asset managers is the use of third-party AIFMs.

The Alternative Investment Fund Managers Directive (AIFMD) imposes stringent regulatory requirements on fund managers operating within the EU.

By partnering with a third-party AIFM, non-EU managers can comply with these regulations without establishing a full-fledged operational presence in Europe.

Third-party AIFMs provide a comprehensive suite of services including fund management, compliance, risk management, and marketing within the EU. They can not only help in navigating the regulatory landscape but also bring significant operational efficiencies and local market insights, which are crucial for non-EU managers unfamiliar with the nuances of the European market.

These partnerships can significantly reduce the time and capital expenditure involved in setting up a European operation, allowing asset managers to focus on their core competency of asset management.

Leveraging third-party AIFMs means asset managers can also benefit from the AIFM’s established network and credibility in the European market, helping to attract European capital.

Why Luxembourg is a destination of choice for raising funds in Europe

With over €5.2tn Assets Under Management (AUM), and a continuously evolving legal and regulatory framework specifically designed to support investment managers and protecting investors,  Luxembourg is the leading hub in Europe for setting up alternative funds.

For non-EU asset managers, successfully raising funds in Europe requires a strategic approach tailored to the complexities of the European regulatory environment.

Utilising parallel funds allows managers to appeal to a diverse investor base while adhering to local regulations. Similarly, engaging third-party AIFMs offers a practical solution for managing funds and complying with the AIFMD, thus facilitating access to the European market.

The ongoing development of the global funds regulatory landscape suggests that flexibility and local expertise will continue to be crucial. Non-EU asset managers must stay informed and adapt to these changes to capitalise on the opportunities in the European investment space. Engaging with experienced fund administrators and consultants, and leveraging the latest industry research will be key to navigating this dynamic and challenging market.

How ZEDRA can help

ZEDRA’s team of fund experts in Luxembourg and around the world possess unrivalled technical knowledge and provide asset managers and investors with pragmatic, bespoke fund administration solutions to alleviate the burden of compliance and ensure robust governance.

For more information on how ZEDRA supports non-EU asset managers, contact Charles-Alexandre Houillon.

How Can We Help You?