JTC PLC (2N9.F) Earnings Call Transcript & Summary

Hello everyone. Thank you for joining today's Private Equity Trend: Fundraising in the EU Webinar. I'm Brenna Cahill, the Marketing Event Specialist at NES Financial a JTC Company. A few housekeeping items before we begin our webinar. We're going to have a Q& A session at the end of the webinar. To submit a question please use the chat box on the left hand-side of your screen. We are also recording this webinar and we'll send a follow-up email with a link to access the recording after the webinar is complete. A quick legal disclaimer; this presentation is intended to provide general information about private equity funds and does not constitute as an offer to sell, as a solicitation of an offer to buy or as a recommendation of any security or investment products. Nothing in this presentation is intended to provide tax, legal or investment advice and should not be construed as a recommendation to buy, sell or hold any investment or security or to engage in any investment strategy or transaction. Viewers should consult their business advisor, attorney or tax and accounting advisor regarding a specific business, legal or tax situation. I am now pleased to introduce our host for today's webinar; Wouter Plantenga, ICS Head of Group Client Services at NES Financial a JTC Company. I will now pass it over to Wouter.

Thanks, Brenna, and good morning, good afternoon, good evening wherever you are in the world. Very warm welcome to all of you joining us today for Private Equity Trends webinar on fundraising in the European Union. This is actually the second webinar in the series of Private Equity webinars we've been hosting and again I'm very excited to be your host today as we have a number of great speakers and industry expert line up for you. But before we move ahead to the contract parts of the -- of today's webinar, I'd like to quickly go over today's agenda. So we'll start off with the speaker introductions, followed by the content part of the webinar where we'll aim to have -- kind of an interactive discussion around the why, how, what of fundraising in Europe. We'll do this effectively with the overall objective to try to first really demystify the perceived complexity around marketing known new investment funds in Europe. In addition, we will discuss the various options used for managers [indiscernible] market the funds in Europe, whether to buy or build what we call an alternative investment funds management platform, considerations around various structuring options and we'll also finish off with a case study through the outlining some of the best practices. In terms of timing, the webinar typically takes about an hour. As Brenna pointed out, there will be a Q&A portion at the end. So really encourage everyone to submit the questions which we'll try and answer at the end. So moving on to the first polling question, polling being a hope item here in the U.S., of course, but this is really a little fun thing that we tend to do during our webinars and helps us a little bit with engaging with the audience. Makes it somewhat interactive. So let's start with the polling question number one, why you're attending this webinar today? So if everybody who is on the call can put in their votes for each of the various options and we'll wait a few seconds before the results come in. [Voting] It's about 30 seconds. So that should be good in a bit. Great. So a lot of first time participants. So that's good. Okay, great. Now that we've seen the results, let's move on to the speaker introductions. So today we have myself, my European based colleagues Marie Fitzpatrick and Gregory Kok. We have also Alexandrine Armstrong-Cerfontaine, who is partner with Goodwin Procter; and Terry Crikelair, Managing Partner with Champlain Advisors. To start off as a quick introduction with myself. My name is Wouter Plantenga. I'm the Global Head of Client Services with the institutional client service division of JTC. Been in JTC for almost 2 years now working out of our Miami office. Prior to joining JTC I was based out of New York for about 15 years where I worked for a number of large global fund and corporate service providers, really as a senior executive, which primarily focus on building and leading sales as well as operational teams. In this interim 15 years working in the U.S. in the global financial services industry, I've worked closely with a large number of private equity funds to assist them with what I call the cross-border outsourcing solutions with a particular focus on Europe. And over the years I've really learned that to really provide clients with a better and practical perspective from how to apply pragmatic best practices, you need expertise and you need really specialized expertise. So we therefore are very excited today to share our views on the subject of fundraising in Europe, which is particularly relevant for those managers who're in the process of looking at Europe as an alternative source of capital and are also looking for both best practices as well as subject matter experts to really guide them through the process of marketing their funds. So before we move to the next speaker introduction, let's also quickly introduce JTC. So JTC is a leading global funds and corporate services provider. We've been around since 1987, have a global platform in about 20 jurisdictions strong, 23 offices worldwide. We have around 900 people globally in addition to managing around 130 billion assets on administration. We've been, again in the business for 32 years and since 2018 we're trading on the London Stock Exchange. And as a nice feature this week, our trading for the first time on the FTSE 250, which is a great milestone for us to achieve in our journey of being a public company. In addition, in April this year JTC acquired NES Financial, which is a Silicon Valley-based specialty financial administrator. NES Financial was effectively founded on the principle really held well intended investment program succeeds and the good they're intended to do and serves a number of investment sectors, which are characterized by high administrative flexibility. And by offering purpose-built fund administration technology solutions, NES Financial is able to really streamline the administration of U.S. funds in specialized markets like private equity opportunity zones EB-5 investment funds and 1031 tax deferred exchanges. So moving on to the next speaker, Marie Fitzpatrick. Marie, over to you.

Thanks Wouter. As Wout said, I'm situated in JTC London's office and I'm joining in today and to talk about one-off into Europe. But in terms of my background I worked within the private equity industry for over 20 years now. I started my career at private equity house, working inhouse doing all the in-house fund administration, capital, distributions, Investor toolkit and what the key fund managers across the period of 11 years. And I've spent the last 13 years of my career working for fund administrations that have actually servicing our clients on that side, so I joined JTC in January 2020. It's been an incredible year this year because of the pandemic. I had expected to travel across the state side, meet up with clients and actually do some interaction that everything we've had to do. Today has been virtually and remotely so this is one of many of the sort of ways that we are actually connecting with the clients. So that's high level view of who I am and I will be talking to you later on this presentation.

Yes. Thanks, Marie and over to Greg. Greg over to you.

Thanks Wouter. Greg Kok, so I am the Group Head of JTC Management Company Services which essentially means that wherever we have these licensed Man Co AISM businesses, which I'll be talking about a little later. Those teams or business lines reporting to me. I've been in the asset management game for about 23 years, worked for a long time with Franklin Templeton Investments and was fortunate enough, while working for them to live and work in some very interesting places like Vietnam and Singapore and Bermuda as an investment manager primarily in private equity but also did some real estates and debt investing. I've been in Luxembourg, where I'm now based for the last 6 years, and in all that time being in the management company space. It's harder to content by training. So I do have -- I guess, core financial aspect to me and really just looking forward to trying to educate the audience on from a global perspective on EU fund raising parts into that and how it is possible without having a physical presence in the EU to access investors in this region. Thanks Wouter.

Yes. Thanks, Greg and we'll move along to Alexandria. Over to you.

So many [indiscernible] partners in the Goodwin's Private Equity group. I'm a Transformation Partner and I'm also head of the Luxembourg practice of Goodwin. So I focus on international fund formation and I have a particular expertise for private equity funds in that some and I also structure quite a few carried interest and co-investment arrangements. I also set up unregulated structures and we can talk a little bit about that later on. So I have quite some familiarity with the U.S. market, trying to get and to fund raise on Europe with European investors and investors also located in Asia. And we will talk about the pros and cons of various options available to U.S. managers, a little bit later on. I leave on to Terry maybe to introduce himself.

Yes, thanks Alexandrine and last not least Terry, over to you.

Very good. Thank you. My name is Terry Crikelair. I'm the Managing Partner at Champlain Advisors. Started off at Credit Suisse and the Placement Group in the mid-90s. And then went to Boutique. We run a global fund place in operation that we founded in 2003 with my former Credit Suisse colleagues. We lead a 50 plus person global distribution network with a local presence across North America, LatAm, Europe, the Middle East and Asia-Pacific. Our model is a bit unique. We over-concentrate our client base, high conviction only mandates, 5 to 10 non-conflicting strategies at any one time on average, and that overconcentration has yielded us a 100% success in place in capital for every exclusive mandate we've taken on over the last 17 years. In terms of client selection, we're opportunistic. For example, we're doing the global exclusive placement with large players like Angelo Gordon, a $35 billion plus size shop. And then on the other extreme, we'd work with high-growth players like American Infrastructure who we met with $400 million in AUM and now they manage a few billion dollars that we've helped raise them over the last handful of years. Back to you Wouter.

Yes. Thanks, Terry. So again I'll move on to another polling question before we go into the content. So everybody on the call again, everybody can submit their answers on the question, which of the following the structured primary motivation for fundraising in the European Union? So take another of the seconds for everybody to submit their answers. And then we'll move on. [Voting] Okay, the results should be in any time. Okay, great. Okay. Well, that's obviously the topic of discussion today. So, let's jump in. Summary, let's kick it off. So let's talk about fundraising. So why look to Europe and European Union in the first place when considering alternative source of capital? So over to you Marie.

Thanks. Wouter. So we see a number of managers looking to Europe. The U.S. managers are wishing to full diversify their investor base. That might be just one reason that they come to Europe to raise capital and it could be because there's large pools of capital available throughout Europe. But we have also seen a trend that managers are slightly nervous about whether to come to the EU. There's a deliberation process that goes on with each manager on deciding what's important, where their investor base is, where they're actually going to deploy that capital and looking to actually successfully attract capital from Europe might be part of that deliberation process. They need to sort of consider a number of things in terms of whether they're going to be successful, what they're actually going to involve in terms of raising capital in Europe. And quite often they get caught off in terms of consideration of Europe. They pause -- the point that they hear AIFMD and they kind of get scared, the complexities of the language that Europe has kind of overlayed into the marketing process. So there's a number of reasons to come to Europe for capital and that's because it is available and there's the European-like limited partnership base wants to invest into U.S. managers. They want to see the top quartile fund managers and they wanted to make those commitments on that side. So options for access in the European Capital, there are 4 approaches that we see managers in the U.S. take. So once they've gone through that sort of internal deliberation process, they either going to come to the decision that actually Europe is too complicated so they choose to ignore it. The second sort of stage is, whether establish a sum within the EU to access Europe by the marketing half that you obtained through AIFMD from having [indiscernible]. The third approach would be National Private Placement Regime and the fourth approach would be reverse solicitation. So we kind of sort of think about those 4 approaches. The initial reactions from managers to sort of ignore Europe is really sort of the lack of understanding and their view that Europe can be quite complex to actually access capital. Moving on to sort of reverse solicitation. This is where a European investor directly approach the U.S. manager. So a number of the largest U.S. managers that already have existing relationships may not need to enter Europe through AIFMD or National Private Placement Regime. They may have the large limited partners knocking at their door and actually trying to say to them like, give them their capital; they're lining up to actually give the capital. So we do see still as a common approach in terms of European Capital moving to U.S. managers. There is still a large number that's coming through reverse solicitation but that said, it needs to be documented properly and they need to have supporting evidence of the actual limited partner has actually approached them on that side of things. And they should actually spend time with their lawyers and just make sure the appropriate steps have been documented and they followed the right process on that side. And then, so moving on to National Private Placement Regime, the National Private Placement Regime is the process of registering a fund-to-market in an individual EU jurisdiction. So I would align it to arrive for a targeted approach. You actually look at the mass of Europe and you decide where you think your investor base is and you register within that country. You guys are ready to that EU country and you speak to the regulator and you do that. And the reason that numbers of the funds that we service will use that method is because the cost of running [indiscernible] might be prohibited to them. They might still then won't be able to raise enough capital from the European investors on that side. And the final approach is actually setting out a parallel fund. So establishing a fund within Europe allows them to access the European investors via [indiscernible]. So why establish a presence in Europe under a regulated umbrella? Managers choose to do it because they know that they're going to be successful in Europe and they are confident and on the amount of capital they can raise. They really -- we look at managers that are targeting large amounts of capital from Europe, greater than EUR300 million, another reason to use [indiscernible] would really be to actually ring fence the cost of the operating cost to the EU investors, accessing capital from Europe by the use of our National Private Placement Regime, whether you go by the parallel fund structure is going to be expensive. So there is a number of considerations to actually consider but large managers looking to raise greater than EUR300 million want to actually market more than 3 to 5 EU member states more than likely to achieve the [indiscernible] whilst managers that have targeted a smaller number of EU member states may be 3 to 4 they might choose through the National Private Placement Regime. So that's kind of what we see in terms of the options available on how to access the capital. And so I'm going to actually pass you across to my colleague, Greg Kok, who is going to demystify [indiscernible] and actually take you through how it works in principle and get you comfortable some of that terminology. Over to you Greg.

Thanks, Marie. So the first thing I'll say is that unfortunately the first slide that I'll talk to you has a lot of acronyms on it. And so the first demystifying I'll do is just explain those really quickly so the AIFMD or Alternative Investment Fund Managers Directive is a piece of legislation that was introduced in Europe in 2013. And really the purpose of this legislation was to create a single set of rules to alternative funds. The industry had seen some great success in the use of strategy in over a number of decades. And there was some kind of desire to create a single framework for alternative investment funds and alternative investment fund managers. And so this is what the AIFMD has sought to do. It's been in place now 7 years and I think it's been a real learning process for the industry as [indiscernible] their arms around exactly how the AIFMD is supposed to operate. And the players within Europe and the role they're meant to take has also evolved somewhat. This has led to a discussion recently about revising the AIFMD and perhaps coming out with its second version sometime I think in 2022 is the current target. The second acronym is AFM or Alternative Fund Manager, which really relates to the investment fund manager that manage alternative assets and that would cover any asset class that you wouldn't think of as traditional security. So the private equity funds, your real estate product set, fund of funds and hedge as well. So it's the liquid and illiquid alternatives are covered under that acronym. And finally what I'll spend some time talking about is the concept of an Alternative Investment Fund Manager or AIFM. So the AIFM is really the central concept of the AIFMD and really allows a manager that is not physically based in Europe by signing up an exit in AIFM and allows them to use the so called AIFM's cross border marketing passport. So in other words the AIFM has the permissions to market funds across Europe on a very simplistic basis and the managers by signing up with AIFM are able to use that passport. So, as Marie was alluding to, where you have a desire to access multiple European markets you have that ability by accessing an AIFM either setting one up in circle or using a third-party AIFM, which I'll talk about in a minute. And immediately through a single notification at the local regulatory level, you can notify numerous EU countries that you intend to sell your product or raise money in their markets. So that's one of the primary reasons for the AIFM's existence. The other main role that the AIFM plays is the day-to-day management of the fund itself. So if you think about it this way in the first instance, by appointing an AIFM you get everything that is involved with the management of a fund, whether it's portfolio management, risk management, distribution or fund administration, all of that is the responsibility of the AIFM. AIFM has the ability to retain those responsibilities or delegate them to other service providers, such as fund administrators, depository banks, et cetera, all at the same time retaining the need to provide oversight on behalf of the Fund Management clients. So the AIFMD is really a structured way of managing alternative funds. It's ideal for institutional type investors like insurance companies and pension funds where the investors really prefer a structure that is very well governed, the rules are very clear and they like the fact that there's this AIFM involved in the structure that is like a big brother overseeing the day-to-day activities. If we move onto the next slide. So why would you appoint a third party AIFM? Now, let me just take a step back here. You have 2 options, you do have the option of setting up your own AIFM. What also I'll note is, it's a fairly onerous process. You need to access very specific skill sets and resources. There's quite stringent substance requirements for AIFM, the technical expertise is quite high. So it does come with a certain cost. The other thing I always tell people that are thinking about setting up their own AIFM is, it's really a business line of its own and you need to ask yourself whether that's the kind of business you want to be in. And finally, there are very good other options. And so, it is possible to access a third-party AIFM such as the business that I run for JTC. And by accessing the third-party AIFM, you immediately get access to that cross border marketing passport that I was alluding to. It's certainly an opportunity for you to develop your funds, your EU domiciled funds to market them and raise capital without actually committing too many bodies or resources to Europe itself. We like to think that you do get access to high quality of technical skills. So within our business for example, you have people like myself with hands-on portfolio management experience normally in the asset class that our clients are operating themselves. We have risk management professionals and also governance professionals, there are, provide that insight into the local compliance and regulatory environment. So all of that is taken care of for our portfolio management clients, really with a view to allowing them to get on with what they do best, which is to source deals, raise funds and structure their portfolios. It does also give you access to the type of IT infrastructure that we use in particular for larger funds where heavy risk management requirements are part of the structure. This is certainly a simple and easy way to access the systems that need to back that up. And you also get access to the AIFM's network, both within the local country that you would be domiciling your funds as well as the, in our case the broader group and the network of other service providers and general expertise that comes with that. And finally, there is the option, the so called one-stop shop option, where it's possible to access all of the fund and service providers under one single roof. So the fund administration, dom affiliation, even depository banking is all possible to obtain from a single service provider with the AIFM being the core concept behind that. Finally, I just wanted to share this slide, which is there are a number of different structuring options as to how you would think about structuring a fund to be marketed in Europe. And I'm sure, Alex, and Terry will be covering us in a lot more detail than I will. But this is a great slide because it shows you, 2 of the most popular options, which is the, on the right-hand side, the typical master-feeder structure. And on the left-hand side what we see more often now it's a far more popular thing, which is to set up a parallel structure in Europe that invest alongside for example your delivery funds and provides -- you reach in to those funds for your EU investors. So with that, I think I've said enough. I welcome all your questions at the end and I'm happy to answer that. Maybe I'll just hand over to you Wouter.

Yes. Thanks, Greg for that, and Marie also for your part of the content of the surveys, insightful. I have few questions but we'll move along in the presentation because to kind of really show the Brexit for what it means for the first time managers. Alexandrine and Terry have actually put together an actual case study. So Alex and Terry can I hand it over to you.

Very good, thank you. So this is just a quick snapshot of what we're going to cover on the next couple of pages diving into some of the legal and compliance rules and regulations, the timing associated with AIFMD set up, some of the pitfalls and risks that one should consider while making these decisions. We cover the structuring options, which we'll go into more technical detail in a minute and the marketing options, but there are a few other items to consider in your evaluation. These are both functional as well as optical points that really requires some forethought, which we'll also discuss. But specifically for example the jurisdictional familiarity, you need to choose, which domicile would appear most to your LP targets. And I would also add that your LPs might be European based, but we have structures that appeal to folks in other parts of the world, Asia, the Middle East and beyond. We'll talk a little bit about the LuxCo versus the Cayman as well. In terms of the actual partnership and fund structure, we'll touch on race and FCA race and SICAV, et cetera. One important thing to consider is tax. In particular for U.S. credit infrastructure and real estate managers, the FERC and ECI complexities that arise can be significant. We will take you through a case study where we've actually embedded an insurance blocker within the AIFM, which has provided a pretty eloquent solution in terms of tax mitigation for foreign investors. And then we'll touch a little bit on the compliance functions regarding KYC and AML in the case study as well. Alex, over to you.

Thank you [indiscernible]. We [indiscernible] Terry that it might be worthwhile having a look at the restructuring options, which are available when you're fundraising. And this should be showing on the screen now. So I think Marie touched upon this earlier, effectively when we speak to you, you're used to having a Delaware fund structure you will have something in some operations through Cayman structure and your biggest concern is going to be right, I need to raise some money from European investors. But I don't know quite how I should do it. And there is one very simple option, which is option number one on this chart. So that's effectively allows you to stick with what you know best. It's a simplest option, it's your fund, which might be Cayman, which might be Delaware or anywhere else in the world actually outside Europe. You've got new AFIMD requirements. You've got some costs, but you don't have the cost of the AFIM, which Greg presented earlier. And you don't have compliance required with some reporting that the AFIM has to do. So it ticks a lot of boxes and it makes people generally very happy to say that it is going to be fine to go ahead with a Delaware or Cayman fund. The problem however and we'll talk about it a little bit later, is that because you will not benefit of any European passport, you will have to get into every single local domestic floor in each of the European country where you would like to market. And here is the same, it's not the most straightforward scenario. We'll talk about it a little bit later on the technicalities and therefore very often that option is not to become stirred if you are considering a fundraising that is more than a handful of investors in Europe. And there are some countries that we will see later which are simply not permitting any private placement regime. So some member states have got very, very onerous approaches to the NPPR, the private placement in regime, the local domestic load to place interest in a fund and therefore that makes things quite complicated. So you might therefore consider, let's stick with what I know best and let's continue with my Cayman's sleeve or my Cayman main fund or my Delaware main fund and let's have a sleeve that I dedicate to European investors. That's better and that's already better for one reason which is that, if you're looking at French DSIs or European DSIs if you are into infrastructure world and you'd like to raise some money for say a new energy fund that you are setting up and you would like to tap into the European Investment Bank, which obviously is a relevant investor here in Europe, then your payment structure or your Delaware structure will be totally unattractive to them. They will invest only through a European structure. This is also the case for quite a few pension funds in Germany and so you restrict your options and often therefore leave a sleeve in Luxembourg. The cause of it is that of course you have now something that is palatable to the most demanding European investors, but they are also those who have the pro caps but at the same time, it can be a little bit complicated because you've got the duality of the structure with what you can tell from a legal perspective, votes at fund level including the European and the American funds can me sometimes slightly complicated. You will see some reservations, illegal opinions on that topic. You will have to come to the AIFMD and most likely you will appoint Greg or another AIFM or consider even in operation but in the case of just sleeves usually for most of the funds, this is not quite necessary and you will go for an option with appointing a third-party provider as your AIFM. It's an increased cost and what happens in practice, and this is one of the worries or concerns of U.S. managers is how do I actually allocate the regulatory burden and the cost associated to it? And the market here is very split. You have some managers who are working on the basis that cost and operational cost globally, which will be allocated throughout the fund across all investors, and you have some of the managers who allocate the regulatory costs for both European investors and possibly other investors from other parts of the world to those investors being admitted in the European state. Both methodologies works, both practices work and with it the market is split 50-50 in this respect. From an operational perspective though, it makes things slightly more complicated to manage. The third option is obviously to have a single fund structure close to like option one but have it onshore in Europe. And then comes the question which country shall it be and I can tell you that in 95% of the cases, the answer to your question will be, it has to be Luxembourg. And I am totally agnostic about the jurisdiction, if I may say it is unquantified in the UK, unqualified in many countries. So it's relevancy wherever you go. In practice though it always ends up in Luxembourg and the reason is that it is the only country in Europe that has partnership that is so close to what you have prepared and worked on for years from America. So we can effectively take your LPA from Delaware or from Cayman and make it Luxembourg compliant. And that is something that happens very often if you want to move across the whole fund with your investor base from one, 2, 3, 4 and so on and so forth. And you want now new money outside the U.S. and in particular you want European money, you can have a product, do it very often. You have a product and we've done it with Terry recently that has been designed and drafted in America that has been negotiated and with which familiar way with real terms, which we can duplicate relatively quickly in Luxembourg to make it compliant with Luxembourg law. And that vehicle does not exist in any other country in Europe. The other point is that the tax network of Luxembourg in comparison with other European countries is much, much broader with a network of over 80 double tax treaties within the world and so that's easy again. We have some products and some funds only in Luxembourg that allow you to optimize return for your investors. So that's effectively where we are and that's why option swing is more often considered by U.S. managers. We have had various managers previously fundraising solidly in Delaware, for example in Cayman and who facing the resistance of some relevant investors in Europe decided to migrate the investor base and the fund into Luxembourg. If I move on to the next slide. I hope that you can see where we are. If we look at the timeline to a first clause with the Luxembourg solution, onshore solution, you will see that obviously there is an impact in choosing option one. If you go for option one, you need to think about all the nitty-gritty of domestic laws wherever you want to fund raise, wherever you want to market and that means in practice that you need to add 5 to 7 weeks in -- as a ballpark to the timeline that you have planned for preparing your documents, being ready to go-to-market and having effectively someone like Terry presenting those documents to potential investors. So the reality is that what you think you might save in simplistically and staying in the U.S., might have a pragmatic impact on the timeline and the process of fundraising in different jurisdictions. So if we have a look now, I'm just going to turn the page and you should now see a very pretty colorful map of Europe, which I've prepared for you. And I think that is quite important that you try to remember the colors there and that you noticed that there is a lot of red on that particular map. So the reason why there is lots of red is that the NPPR regime, the private placement regime which you would consider in option one which we discussed before, is not available very much everywhere in Europe. So let's have a look. And in order to memorize this map, to give you a ballpark on reflections on how to tackle Europe. If are looking at the NPPR regime then what you need to remember is the following. And I hope that some of you might like beer and some of you might like wine. So the beer producing countries which you see in yellow and in orange in that map, that means that it's relatively straightforward to deal with the NPPR regime. You want to go to the UK, it's going to be easy. You want to go with an NPPR system to Luxembourg or to Belgium, that's going to be easy. So you're going to say, what about the Germans. The Germans have got a lot of money and obviously this is a country from going to Europe that I would want to consider. And I'm afraid that the Germans on that matter are wine producers meaning here but it's complicated and costly and time-consuming to try to market in those jurisdictions without a passport. So [indiscernible] that I wanted to flag at this stage and as a point or so to bear in mind is that if you go for the NPPR, that doesn't mean that you do not have any cost whatsoever and that you just have to do a filing with the regulator, far from it. There's always cost associated with the application of the NPPR regime. Some European regulators are asking for a payment when you apply. There are other costs which are triggered because you will have to pay an annual fee anyway to most of the regulators where you're doing your marketing and that does not end on these then. You will continue to report to those regulators even when you're marketing is finished and you will continue to have a regulatory burden for so long as you will have investors in your funds in that particular country. So what you're potentially saving at the very beginning in the long run if you look at the time constraints for fundraising, windows of opportunity for bringing in some investors located in some countries and then the additional reporting that you will have to in many cases when you register with the NPPR you have to then make an arbitrage as to how far you're willing to go in order to use that option as opposed to going for the marketing. As a rule I always and I'm not giving you any legal advice here, but as a rule, of a handful of investors in few of the countries that's worth it most likely unless your investor in Europe expects a Luxembourg solution with a Luxembourg manager, which is a third-party AIFM or otherwise I think that's, in most cases, U.S. managers are going for a full passport.

Hey, Alex, on that point, we might talk a little bit about the reporting, the compliance, the KYC that AIFM can provide rather than doing it in-house, which to me most managers enjoy making the buy-sell decisions and growing companies rather than administrative detail on the side. If you have the platform to leverage, to grow and handle those administrative duties, that's one thing. I know many large GPs that have no interest in that either. But at the end of the day, the cost of the AIFM and all the third-party responsibilities that have become really not only accepted but almost demanded by LPs in the US are also borne by the fund. And so when you're talking about the cost-benefit analysis from a dollars and cents perspective, I think that that's a major factor for certain people to consider.

That indeed a very, a very important point noting that the cost of, obviously the marketing passports if you're going for platform with a provider such as JTC, this is all cost, which have been borne by the fund and not by European and not by US managers. So this is part of the ongoing operational expenses that investors pay as part of the ongoing expenses of the funds. So that's a very, very important. Thank you Terry for making this. If we move on to the next slide. I just wanted a snapshot to show everyone that it's not that straightforward to use NPPR and it's not that straightforward because some countries are absolutely closed for business when it comes to that method. And some -- for example, if we look at France for example, they do expect an absolute and full compliance with the AIFMD. And therefore, they are not considering any NPPR options. So the only solution that's left to you is to consider reverse solicitation [indiscernible] on reverse station solicitation because I do know that this is one of the options that U.S. managers always asked me to come to the -- as an alternative to all this regulatory burden. Rule number one and so far as reversal station is concerned and I will never ever put that in writing. Rule number one is, if you have more investors than you have fingers on the hand, then try to avoid reverse solicitation like the [indiscernible]. How on earth would you think that you could evidence against any claimant that you somewhat when known by those investors, by such a large number of the investors. So you need a connectivity, you need a link reverse potential investors and if it's the first time going to Europe that will be complicated to create or to evidence. Point two, I do write absolutely gorgeous clauses, which do say that the investors soak your documents requested them and that shouldn't then make any solicitation to that investors and that's useful. And what I always say to our U.S. clients is that it's really useful to the extent that if one day there is a dispute your counterparty limited partner would not be able to evidence that you have produced something or you wrote an email, it could be a WhatsApp communication does happen in practice, where you actually solicitated them. And this is -- it crooks up the matter. What matters is the fact which are alleged by the claimant against you to evidence that there was an issue and in addition to that in most of the European countries, the burden of proof will be on your side, meaning you will have to prove that you did not solicit investors. So you could say, well, that's fine. But in practice then what happens, it's really relevant and I will tell you, well, still faster good, touchwood, it's not really many cases, which has been published, punishing a DT for soliciting investors in Europe. Does that mean that it will always be the case? The answer is no, but what would be the sanctions. Well, if you were doing the business in UK you would be sent to jail. It's a criminal offense with a jail penalty possibly that would be judged against you. So that's quite a headache risk that you're willing to take. So again reverse solicitation remember never move inside in one country. You must have some form of connection, connectivity with that particular investor and you have to be feeling sufficiently comfortable in addition to the declaration and confirmation in the subscription document. You have to be confident. But none of your team members has put anything in writing ever over that could be construed as a solicitation of that particular investor. I hope that this is -- and I think maybe Terry, you want to share a few words on how in practice this is perceived and how often you see that versus effectively a marketing perceptive.

Yes, sure. I think that the world continues to evolve and back in the day reverse solicitation was generally accepted and not much of a concern as the regulatory framework has evolved over the last several years, the rules and the lines have gotten brighter. Why don't I take you through a case study on a client? I can give you a little color as to how they started off and then how we ended up. In particular, we had a multi-billion dollar real estate infrastructure manager. They are based in the U.S., invest in U.S. real property in the U.S., and they've had continued success fundraising capital across the Americas, Asia-Pacific and the Middle East. We've had success doing the reverse solicit route in Europe, but again the rules were changing, the restrictions were getting clearer and the effort itself was getting restricted further. And so we were presented with 2 tasks. One, how do we solve the European riddle so to speak, so that we do this in a straightforward and deliberate manner? And two, how, if at all can we mitigate the tax situation. So we started off seeking how best to approach Europe through the passport structure so that we could build their brand more fully and then focused on the FERC and UCI tax ramifications for European but also these other investors from LatAm and the Middle East and Asia that were interested but were seeking a less burdened tax overlap. So in moving towards that solution, we engaged Lux Council via Goodwin and we spend a lot of time talking with various players on the AIFM side, trying to find someone who is both sophisticated enough, but also transparent enough in how the fees and such were overlaid on the fund and we found and concluded with JTC, and together we all collaborated on the tax solutions to deal with investors out of Asia, out of Latin America, out of Europe, out of the Middle East including Sharia compliant investors. And so the result was really a nice package, a one-stop solution with the European marketing passport. We ended up avoiding Cayman, moving towards a LuxCo SCA race and embedding within that race an insurance blocker all wrapped into an AIFM under JTC where the manager effectively outsourced all KYC, all AML, all the on-boarding and compliance regulatory hurdles that go with that and all ongoing reporting, which as we talked about before is a fund expense to JTC. And I think Alex would it be fair to say to orchestrate that model again would be somewhere in the 6, 7, 8 week range without any headaches of reverse solicitor and NPPR experience and handing it all off?