The SCSp seldom faces the targeted investments directly. Instead, the SCSp typically invests via another entity (Aggregator) through which US and/or Cayman investor-facing vehicles that are part of the same fund complex also invest. Between the SCSp and the Aggregator, USFM often structure so-called blocker or splitter entities to accommodate the tax needs of certain pools of investors and carried interest holders.

If the SCSp exposes at least 85% of its assets in another AIF, the SCSp qualifies as a ‘feeder AIF’ (Feeder AIF) and the other AIF qualifies as a ‘master AIF’ (Master AIF). Assets exposed in AIFs with identical investment strategies must be aggregated to assess the 85% rule. The 85% rule is applied on a look-through basis.

The benefit of the passport is lost if the SCSp is a Feeder AIF to a non-EEA Master AIF. The rationale is that a marketing passport should only benefit EEA Feeder AIFs if the investment strategy is predominantly conducted through AIFs that are themselves entitled to the passport. Hence, a European Feeder AIF to a Delaware or Cayman Master AIF would not benefit from the marketing passport. On the other hand, non-EEA AIFs that invest in parallel with the SCSp are not problematic for the 85% rule.

When the fund structure is on the drawing board, it is thus key to verify whether any non-EEA vehicle to which the SCSp exposes 85% or more of its assets qualifies, from an EU perspective, as an AIF. The latter is in principle only the case if the non-EEA vehicle conducts its own investment policy and aims to directly or indirectly onboard external capital. It can generally be held that non-EEA structuring vehicles below an SCSp such as aggregators, blockers and splitters do not qualify as AIFs and are thus not problematic.

The 85% rule does technically not provide a ramp-up. However, an SCSp that conducts e.g. a secondary fund strategy and makes its first investment in a non-EEA AIF should not immediately lose its passporting rights. As long as its genuine intention is to dilute below 85% by the end of the investment period, passporting rights should remain valid.

When USFM tap into the pool of EEA capital with a passported SCSp, they should have the master-feeder rules top of mind.

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