Strategic growth is often synonymous with new products and distribution channels. Increasingly, North American alternative asset managers are targeting European investors as they look to raise capital and diversify their client base outside of their home market.

According to a recent Boston Consulting Group (BCG) study, global net wealth hit $477 trillion in 2023, of which North America accounts for 35.4%, the largest share by far.¹ However, Europe is not that far behind on 21.6%.

Together with having an abundance of capital, investors in Europe are also ramping up their exposures to alternatives, especially private market strategies, creating potential opportunities for North American managers.

There are three reasons why setting up a European structure makes sense.

1. Relatively simple regulations and a common currency: Despite its reputation for onerous and expensive regulation, the EU’s common currency and regulatory framework, in particular Alternative Investment Fund Managers Directive (AIFMD), simplifies what would otherwise be a challenging and fragmented country-by-country process. With further regulatory changes expected that are aimed at harmonizing cross-border distribution rules, as long as you comply with the regulation, it is possible to establish an Alternative Investment Fund (AIF) and distribute it to investors throughout Europe.
2. Popular regulation: Due to their high regulatory standards, UCITS and AIFs are popular among large non-EU institutional investors in APAC, the Middle East, and Latin America. According to the European Fund and Asset Management Association (EFAMA), net flows of funds outside of the EU into EU domiciled funds were EUR 276 billion in 2023, surpassing both the EUR 174 billion raised by cross-border funds sold in the EU and EUR 196 billion accumulated by domestic funds.² Setting up an EU fund structure helps you raise capital not just in the EU, but globally.
3. Retail capital is becoming more accessible: While late to the party, European regulators are making it easier for high-net worth and retail investors to access private market assets via semi-liquid fund structures such as the European Long Term Investment Fund (ELTIF) and the UK Long Term Asset Fund (LTAF). Derivations of these structures have been around in the US for decades, but this is relatively new ground Europe. The combination of a largely untapped, wealthy demographic and new regulatory fund structures designed to access them – demands North American managers’ attention and consideration to launch a private market structure in Europe.

Key Tenets to Successful Expansion in Europe:

1. Do the math – The EU does have a heavier regulatory framework than similar structures domiciled in either the US or Cayman Islands. While many of these regulatory obligations can be delegated to third-parties, such as management companies or fund administrators, the work involved will still be somewhat substantial. A capital raise of anything less than $150 million will make it hard to justify the effort and costs of setting up a fund in Europe.
2. A differentiated value proposition – North American brand recognition may not translate easily to other countries, so be prepared to invest in building a brand in Europe and articulating why investors should allocate to your firm. This is particularly true for all but the largest global alternative managers.
3. A detailed and thoughtful distribution strategy – Firms should develop a well-informed distribution strategy and customize it according to the different countries and investor types being targeted. Managers should also assess whether they want to distribute directly or partner with a regional distributor or placement agent. Broadly speaking, there are two ways to distribute into Europe:
   • National Private Placement Regime – Managers will target certain EU markets and they must comply with the rules in each of them, which may not be that homogenized.
   • Full AIFMD compliance – Managers can freely distribute across the entire EU-27, but there are additional AIFMD obligations, i.e. stricter depositary requirements. Luxembourg and Ireland are two of the most popular domiciles for AIFs when distributing into the EU.
4. Boots on the ground - While the EU has made cross-border distribution easier, each country retains its own distinct culture, norms and, often, language. Hiring a single, English-speaking executive to cover the entire region will not be effective when targeting certain investor types or smaller, niche markets.     
5. Find great partners – Europe is full of knowledgeable and competent partners who intimately understand the regulatory frameworks and nuances. The right partners – whether outside counsel, third-party fund administrators, management companies, placement agents, distribution platforms, or depositaries – can be invaluable resources, helping you navigate this uncharted ground.