If you’re planning to raise a non-EU PE / VC fund, and some of your investors will be in the UK when you talk or write to them, the UK’s financial promotions rules will apply. Get this wrong, and you’ll commit an offence. Get prosecuted, and you might be fined and jailed.
- A low bar to entry: for our purposes, “financial promotions” include any written or oral invitation, encouragement or inducement to invest in an alternative investment fund (AIF) – whether you communicate this yourself, or get someone else to do it for you. “Financial promotions” can include tweets and hyperlinks – so the “financial promotions” club isn’t as exclusive as you’d think;
- Easy to stay out of trouble: you can only a lawfully communicate a “financial promotion” to someone in the UK if:
- You are authorised by the UK’s Financial Conduct Authority (FCA) or Prudential Regulatory Authority (PRA) to carry on regulated activities, and you make sure the financial promotion complies with their rules;
- You are not FCA or PRA authorised, but you get someone who is to approve your “promotion” before its communicated; or
- You carefully target your communications to particular categories of potential investor, and include some prescribed legends in the text;
- The categories: There are lots of categories, but the most common are:
- “investment professionals” – many family offices fall into this category; and
- “high net worth companies“;
- “high net worth unincorporated associations“;
- “high net worth unincorporated partnerships“;
- the trustee(s) of “high value trust“; and
- anyone (A), whilst acting as a director, officer or employee of a “high net worth company“, “high net worth unincorporated association“, “high net worth unincorporated partnership” or the trustee(s) of a “high value trust” (together B), if A’s responsibilities, when acting in that capacity, involve him in the investment in PE / VC funds by B;
- The legends: because most PE / VC fund managers want to send their financial promotions to more than one potential investor in the UK, and the potential investors usually fall into more than one of these categories, it’s common to include a set of legends that addresses them all. But it’s not enough to copy and paste the legends into every relevant document – you also need to do what the legends say you’ll do. In some documents, the legends usually go near the front; in others, they usually go at the back. Wherever you put them, they must be printed in a way that’s clear, legible and not obscured by any other information;
- The reverse solicitation exemption – a get out of jail free card? Sadly not: although “marketing” and “financial promotions” sound like the same thing, they’re not. A PE / VC fund manager might therefore be able to avoid “marketing” and the AIFMD by relying on the (so called) “reverse solicitation exemption”, but he’ll still need to comply with the “financial promotions” rules. Sorry.
The FCA has published some materials to help you work out whether you’re about to communicate a “financial promotion”, even if you’re only communicating with people you know using social media. See, for example: Chapter 8 of the FCA’s Perimeter Guidance manual (available here); and the FCA’s guidance on “financial promotions” and social media (available here). Your usually Cooley contact will be able to help as well.