Key Considerations for Raising Capital in Europe
Following a prolonged period of difficult fundraising conditions, many GPs we speak to are planning to be back in the market during Q4 2024 / Q1 2025. As we have observed over recent years, Europe will be increasingly important for many. Some are familiar with AIFMD and how to navigate the requirements which govern marketing to institutional investors in Europe; others are considering Europe for the first time. We have set out below a brief summary of the key questions and considerations.
1. Isn’t fundraising in Europe difficult?
AIFMD, the regulation which governs marketing in Europe, has now been in place for over a decade. Whilst not without some complexity, the reality is that marketing private funds in Europe is more straightforward than many first fear. Regulatory fund counsel take care of all the registrations, and service providers pick up most of the operational lift. The ability to pre-market also makes marketing efforts more focussed than in the past.
2. What are the options?
There are two – marketing a non-EU fund, i.e. Delaware LP, via the National Private Placement Regime (NPPR), or marketing an EU fund, i.e. Luxembourg LP.
- NPPR means targeting a selection of countries. It is operationally easier, but you cannot access all of Europe. This is still Route 1 for the majority of North American GPs looking for European LPs. We have many clients successfully raising capital in this way.
- A Lux fund gives you access to the European marketing passport. It is operationally heavier and more costly, but potentially gives you access to more capital. Larger GPs and those with European presence might find this a better fit.
3. What are my peers doing?
The majority of North American GPs raising capital in Europe do so via NPPR. Many have done so for multiple vintages of multiple strategies. Lux is of great interest to many, but most can raise enough via NPPR to not require a separate European structure. We have observed this changing over time and see more Lux funds each year.
4. How do I choose which option is best?
To best map out the market and assess LP demand, we would recommend using our Hosted Pre-marketing service. This allows you to “pre-market” your product to European LPs, ahead of establishing any potential European substance. If demand doesn’t warrant a full Lux fund, you can decide instead to market via NPPR.
5. How long does this all take?
Pre-marketing can be up and running within 2-4 weeks, most will use it for 3-4 months (or longer). NPPR applications can take between a few days to 6 weeks in most countries that allow it, but Denmark may take longer to be proved, depending on the jurisdiction. A Lux fund can be established and up and running in three months.
6. NPPR sounds good, what do I need for that?
Once you have decided which countries to market in, your regulatory funds counsel will assist with the marketing applications. There will be ongoing reporting requirements in each country also. These are known as “annex IV” reports, and are similar to Form PF. Langham Hall will take care of these. If Germany and Denmark are on the list you’ll need to name a depositary-lite provider in your marketing applications. Langham Hall can also assist with that.
7. I like the idea of Lux vehicle, what does that entail though?
For a Lux fund you will need a host-AIFM, fund admin and depositary. Langham Hall can provide all of this from our 250 person office in Luxembourg.
8. What about the cost?
Pre-marketing is very cost effective. NPPR is also relatively inexpensive. A Lux fund should be targeting €200m minimum to be cost effective.
9. How do I find out more?
If you’d like to hear more, drop us a line and we’d love to speak further. You’ll only speak to partners and practitioners, no sales people, so we know what we are talking about and can help you work out what the best approach would be for you.
