Trump 2.0 Implications for Accessing EU Private Markets
- The regulatory landscape for EU private markets underwent a period of significant changes over the course of the recent past, culminated in 2024 with the entry into force of an amended version of AIFMD. Some of the changes brought forward with AIFMD II, which could be deemed minor on paper, come with the potential to significantly alter the access for US fund managers to EU private markets from abroad.
- Originally introduced with Brexit and UK fund managers in mind, the new AIFMD II NPPRs preconditions come as a handy tool for the Union to block access to EU private markets and their investors also for US fund managers. As we hear increasingly more under Trump 2.0 about tariffs used as a negotiation tool with other countries across the globe, it is timely to refresh some of the concepts around the new AIFMD II NPPRs preconditions.
- Should relations between Europe and the USA shift, particularly with the potential threat of tariffs, these regulatory measures could become part of a broader retaliation strategy from Europe. Luckily, US fund managers interested in gaining or maintaining access to EU private markets have a set of options when it comes at replicating existing strategies hosted in offshore AIFs into equivalent European solutions.
Trump 2.0 Implications for Accessing EU Private Markets
The regulatory landscape for EU private markets underwent a period of significant changes over the course of the recent past, culminated in 2024 with the entry into force of an amended version of AIFMD. Some of the changes brought forward with AIFMD II, which could be deemed minor on paper, come with the potential to significantly alter the access for US fund managers to EU private markets from abroad.
The most notable change consists in the revision of the preconditions to enforce local National Private Placement Regimes (NPPRs). A key tool for US fund managers to market their AIFs to professional investors across Europe, national private placement regimes are here to stay under AIFMD II. Yet, the introduction of these new preconditions could make it impossible for US fund managers and their offshore AIFs to access EU private markets going forward.
Originally introduced with Brexit and UK fund managers in mind, the new AIFMD II NPPRs preconditions come as a handy tool for the Union to block access to EU private markets and their investors also for US fund managers. As we hear increasingly more under Trump 2.0 about tariffs used as a negotiation tool with other countries across the globe, it is timely to refresh some of the concepts around the new AIFMD II NPPRs preconditions.
Accessing EU Private Markets from Abroad under AIFMD
Before the introduction of AIFMD, some EU member states had already in place national laws to govern access of foreign investment funds to their local markets and investors. One of the characteristics of a distribution strategy based on NPPRs, even under AIFMD and its revised version, is that managers can access EU private markets only on a country-by-country basis. The only difference introduced with AIFMD was that all member states in Europe had to introduce local rules for NPPRs, which before were not available necessarily across all member states in the Union.
NPPRs are essentially national legislation and remain as such under AIFMD. Yet, the directive introduced certain preconditions on NPPRs at European level. Accessing EU private markets from abroad under AIFMD is governed by both subjective and objective preconditions on NPPRs dictated by the directive itself. Subjective preconditions are related to the jurisdiction in which the non-EU AIFM and the non-EU AIFs are domiciled. Objective preconditions pertain to the disclosure requirements imposed by the directive on the fund offering documentation of the AIF.
Under the first iteration of AIFMD, only two subjective preconditions existed. The first subjective precondition required that appropriate cooperation arrangements for the purpose of systemic risk oversight and in line with international standards were in place between the competent authorities of the Member States where the non-EU AIFs were marketed and the supervisory authorities of the third country where the non-EU AIFs or non-EU AIFM were established. Cooperation arrangements ensure efficient information exchanges that allows competent authorities of the relevant Member States to carry out their supervisory and monitoring duties. The second subjective precondition had to do with the third country where the non-EU AIF and the non-EU AIFM were established and required that these were not listed as a non-cooperative country and territory by the Financial Action Task Force (FATF).
The New Subjective NPPR Preconditions under AIFMD II
AIFMD II significantly heightened the NPPR subjective preconditions introducing moving targets in the equation that did not exist before. It is yet to be seen how these will impact the predictability of the access to EU private markets for US fund managers going forward. The first new NPPR subjective precondition relates to AML risk classification of the third country where the non-EU AIFM and non-EU AIF are established. It is an amendment of an already existing precondition.
Where under AIFMD there was a reference to the FATF list of non-cooperative country and territory, AIFMD II shifts the eligibility of third country domiciles where non-EU AIFM or non-EU AIF are established to not being identified as a high-risk third country pursuant to Article 9(2) of Directive (EU) 2015/849. Given that the European Commission continues to work closely and be a member of the FATF, in one with historically having adopted FATF resolution, including on the status of the Cayman Islands, we can conclude in fairness that this might look like a cosmetic change. Yet, another layer is introduced in this precondition and a potential decision by the FATF will take some time, in both directions, to be reflected at European level.
The second subjective precondition under AIFMD II is entirely new and introduces a twofold requirement. First, the third country where the non-EU AIFM or non-EU AIF are established must have signed an agreement with the Member State where the AIF intends to be marketed. This agreement must align fully with the standards laid out in Article 26 of the OECD Model Tax Convention on Income and on Capital. The second part of this new requirement involves ensuring that the third country is not listed in Annex I of the Council Conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes. The list, which is updated twice a year, adds a dynamic and unpredictable element to the NPPR framework, as countries may be included or removed from the list based on evolving tax and transparency standards.
What Lies Ahead for US Fund Managers and EU Private Markets
The regulatory framework for accessing EU private markets has long been designed to impose certain barriers for non-EU AIFs and their managers established in certain offshore domiciles. Initially designed with Brexit and UK fund managers in mind, these same measures might serve very well European authorities should they wish to target US fund managers instead, relying on the same offshore jurisdictions to establish their AIFs.
Should relations between Europe and the USA shift, particularly with the potential threat of tariffs, these regulatory measures could become part of a broader retaliation strategy from Europe. Luckily, US fund managers interested in gaining or maintaining access to EU private markets have a set of options when it comes at replicating existing strategies hosted in offshore AIFs into equivalent European solutions.
About Veneziano and Partners
Veneziano and Partners is an international consulting boutique specialised in the European regulation of cross-border fund distribution. In catering to a selected group of investment managers, hedge fund managers and financial institution worldwide, the firm offers a custom-made service that is unique and allows its clients to gain competitive advantage in an ever increasingly regulated environment for global registration of UCITS and AIFMD funds.