How to Raise Capital in Europe: Five Years After AIFMD
“Starting in July, non-EU managers will no longer be able to raise capital from European investors.” This was a quote from a prominent publication in 2013 when the Alternative Investment Fund Managers Directive (AIFMD) was first implemented. When this set of regulations went into effect, well-respected advisors and pundits alike suggested that AIFMD would severely disrupt the flow of capital outside Europe and as a result would send waves throughout the global capital supply chain. Thankfully, five years later, these concerns seem to have been overstated. The European LP market remains open to North American GPs and offers plenty of opportunities to raise significant sums of capital. In this post I am going to broadly cover two topics – what is the opportunity in Europe for North American GPs and how should AIFMD inform your Europe strategy?
Sixpoint Partners is active in raising European LP capital for many of our clients. While the individual reasons for their interest in Europe vary, our clients are generally driven to explore European markets for two main reasons. The first is to geographically diversify their sources of capital and start (or continue) building a truly global LP base. The second most common reason is strategic – European LPs can offer perspectives or opportunities that their American counterparts cannot, simply as a result of where they are based. For GPs that are open to European platform investments or may make strategic add-on acquisitions across the pond, cultivating a European LP base can be very attractive simply due to the access that they can offer your firm.
For typical buyout funds between $250 million and $2 billion in size, we see an addressable universe of approximately 500 European LPs. While this encompasses most of the key institutional LPs in the biggest European markets, in any targeted fundraise or investor relations process we tend to key in on about 65 active and high value LPs each curated to your particular strategy. Europe will typically diversify your LP Base but not drive it. The LP mix is heavily dominated by corporate pensions and public pensions, especially in the largest European LP market – the UK. Outside of the UK, Germany, Switzerland and Scandinavia represent the most active LP network. Southern Europe – in particular France, Spain and Italy – are active but much less dense.
Now that we have covered the opportunity set in Europe, it is also important to understand how the AIFMD regulations will affect your Europe strategy. Per AIFMD, non-EU GPS looking to solicit a particular European LP while marketing a fund must first register in that LP’s jurisdiction. If the GP has not registered in the respective jurisdiction, they can only engage with LPs in that jurisdiction via reverse solicitation from the LP. That said, AIFMD is not one size fits all. The invasiveness of the regulations varies significantly depending your target LP’s jurisdiction – some markets only require non-EU GPs to fill out a form prior to engaging LPs, while others have a prolonged approval process that can take several months to go through. Other jurisdictions have no application process at all, and only entertain reverse solicitation engagements.
Navigating the European market can seem somewhat opaque to North American GPs – there certainly is a complex web of regulations that can quickly become cumbersome if you aren’t planning ahead. While this is only the tip of the iceberg as it relates to targeting European LPs, I hope it was a helpful primer to orient your thinking on how best to break into that market. As always, we welcome your perspectives on this topic whether you have raised capital in Europe before or are interested in getting exposure to European LPs for the first time. Have a great weekend!
Sixpoint Partners, LLC, is a registered broker/dealer, member FINRA (http://www.finra.org) and SIPC (http://www.sipc.org). Sixpoint Partners Asia Limited is licensed by the Securities and Futures Commission (http://www.sfc.hk).