Marketing Funds into the EU: Exploring five strategic options
11th June 2024

When considering marketing funds into the European Union (EU), fund managers have several strategic options at their disposal. Each of these options comes with its own set of regulatory requirements, benefits, and potential drawbacks. In this article, we will explore five key strategies that fund managers can consider to successfully navigate the EU market.

1. Setting up a MiFID II entity or equivalently regulated entity within the EU
One of the most straightforward approaches is to establish a markets in Financial Instruments Directive II (MiFID II) entity or an equivalently regulated entity within the EU. This involves setting up a compliant legal structure that meets all regulatory requirements under MiFID II.

Pros:
– Full control over marketing and compliance.
– Direct interaction with EU regulators.
– Ability to market broadly across the EU without additional intermediaries.

Cons:
– High initial setup and ongoing compliance costs.
– Requires substantial knowledge of EU regulatory landscape.

2. Limiting marketing to fund company directors
Another option is to restrict marketing activities to the fund company’s directors. This approach has generated diverse opinions regarding its acceptability and effectiveness.

Pros:
– Simplifies regulatory compliance by limiting the scope of marketing activities.
– Reduces the need for additional licensing.

Cons:
– Severely limits the potential reach and impact of marketing efforts.
– Risk of non-compliance if not carefully managed, as regulations can be ambiguous.

3. Entering into a relationship with a third party marketer
Fund managers can also choose to partner with a third-party marketer that is already licensed in the EU. This allows the fund to leverage the marketer’s regulatory status and expertise.

Pros:
– Quick entry into the EU market.
– Leverages existing regulatory approvals and relationships

Cons:
– Less control over the marketing process.
– Dependence on the third party for compliance and marketing execution.

4. Working with Acolin or equivalent as a Tied Agent
Engaging with a service like Acolin as a Tied Agent is another viable option. Acolin, based in Konstanz, Germany, offers a MiFID II regulated status that non-EU based managers can use to market their funds in the EU.

The Acolin Tied Agent Service:

  • Setup: Asset managers create a company in Germany (EUco) and enter into a Tied Agency Agreement with Acolin AG, leveraging Acolin’s MiFID II status.
  • Speed: If the Tied Agent is domiciled in Germany, the setup time with the regulator is just one day. If domiciled elsewhere, it can take up to five months.
  • Compliance: EUco leverages Acolin Europe’s regulated status and receives training and compliance monitoring for its sales team.
  • Operations: The sales team is led by a resident director of EUco, while other team members can be part-time employees conducting marketing principally from Germany.
  • Financial Flow: Demonstrating a flow of money through EUco via Acolin Europe is necessary, which can include salary, commission, or bonus payments.

Pros:
– Fast and compliant market entry, particularly if based in Germany.
– Leverages Acolin’s existing regulatory status and expertise.
– Comprehensive support in training, compliance, and marketing activities.

Cons:
– Requires setting up a new company (EUco) in Germany.
– Some operational constraints regarding where marketing activities must be initiated.

5. Relying on reverse solicitation
Lastly, fund managers can opt not to actively market their funds and instead rely on reverse solicitation. This involves potential investors approaching the fund manager on their own initiative, without any active marketing efforts.

Pros:
– No need for additional regulatory approvals or marketing activities.
– Low cost and minimal compliance burden.

Cons:
– Highly unpredictable and limited in scope.
– Not a scalable or reliable strategy for growth.

Conclusion

Choosing the right strategy for marketing funds into the EU depends on various factors, including the fund manager’s resources, desired level of control, and appetite for regulatory compliance. Whether establishing a MiFID II entity, partnering with licensed marketers, leveraging services like Acolin’s Tied Agent, or relying on reverse solicitation, each option has its unique advantages and challenges. Fund managers must carefully evaluate these options to determine the best fit for their specific needs and goals.