Reverse solicitation is a fact pattern, not a policy.

Most marketing regimes leave room for the investor who comes to the manager. An institution that has heard of a vehicle, asks for its documents and subscribes on its own initiative has not been marketed to, and the manager has not placed. The room exists, in most regimes by construction rather than by express exemption: marketing is defined as an act of the manager or its agent, and an act of the investor is not one. Its size is decided by facts, and the facts are read by the regulator of the state the investor sits in, after the event, against the manager's own file. A manager who treats reverse solicitation as a policy, a thing it can decide to rely on, has misunderstood what it is. It is a description of what happened, and whether it happened is a question of evidence: emails, diaries, an agent's records, a website's history, a conference programme. The manager holds the evidence for its own conduct and the investor holds the evidence for its, and a regulator reads both.

This note sets out how the room is constructed in the centres' rules, why the clause in the subscription agreement is the weakest evidence, the four things that undo a reverse solicitation, how the Gulf regimes narrow it almost to nothing, what the European form a manager expects looks like and why it does not travel, the inbound log and the standard response, the second-vehicle problem, the website and the press, a comparison, a worked file as a type, cases, what each party holds, the sequence, questions, terms and what to read.

How the room is constructed

The centres' financial promotion rules restrict communications that invite or induce a person to engage in investment activity, made by a firm or on its behalf. A communication the investor initiates is not the firm's invitation, and a response that supplies what the investor asked for is, in most readings, a response rather than a promotion. The room is therefore defined by two facts: that the investor initiated, and that the firm's response did not exceed the request. Neither is a matter of labelling. A firm that has published a description of the vehicle, presented it at a conference or had an agent approach the investor has initiated, and a response that adds terms, other vehicles or an invitation has exceeded.

Some regimes elsewhere state the room expressly, as an exemption for services provided at the client's own exclusive initiative, with conditions and guidance on what conduct by the firm negates it. The centres' rules rely on the definition of a promotion, and the analysis is the same: was the communication the firm's, and did the firm's conduct before the approach amount to an invitation.

The clause is the weakest evidence

The subscription agreement carries a representation: the investor confirms that it approached the manager on its own initiative, unsolicited, and that no offer was made to it in its home state. Every subscription agreement carries it. A regulator has read it in files where the manager's own emails show that the first contact was the manager's, that the investor's "approach" was a reply to a conference presentation the manager gave, or that a placement agent's outreach preceded the approach by a week. The representation establishes that the investor signed a representation. What establishes the fact is the sequence: who contacted whom, on what date, with what content, and whether the manager's conduct before the contact amounted to an invitation. A regulator reads the emails, the diary and the agent's records, and the clause is a line in a document signed after all of them.

The four things that undo it

A published description. A website, a presentation, a published interview or a press release that describes a specific vehicle, its terms or its seed assets, and is reachable from the state in question. Several Gulf regimes read a communication reachable from the state as a communication made in it, and an investor who responds to a communication has not approached unsolicited; it has responded.

An agent's prior outreach. A distributor, a placement agent or an intermediary whose approach to the investor preceded the investor's approach to the manager. The agent's act is the manager's for the purpose of every regime, and an investor who was approached by the agent and then wrote to the manager has been marketed to by the manager.

A second vehicle. An investor who came to the first fund unsolicited did not come to the second. A manager who offers the successor fund on the strength of the first relationship, or sends the investor the successor's memorandum because it asked "what else you have", has marketed the successor. The investor's initiative attached to the vehicle it asked about and to nothing else.

A response that exceeds the request. An investor who asks for a fund's documents may be sent them. An investor who is sent them together with the terms of a co-investment, a side letter proposal, a model the manager prepared for that investor and a meeting request has been offered something it did not ask for, and the offer is the manager's.

The Gulf regimes narrow it to nothing

The Kingdom's regulations define the offer of a foreign fund's securities by what is offered, and the distributor route is the only lawful route; an investor's own approach does not create a distributor, and the regulations contain no exemption for the investor's initiative. Kuwait's module defines marketing widely, and the permission requirement attaches to the scheme; an investor who asks a manager for a scheme's documents is an investor to whom the scheme has been marketed once the manager responds, and the permission was required before the response. Qatar's count is a count of persons to whom the fund's securities were offered; an investor who approached the manager is still a person in the count once the manager responds with an offer, and the public-invitation limb is read against whatever the investor responded to. In the three states, a manager does not rely on the investor's initiative at all. The distributor, the permit and the count are the routes, and an inbound approach is routed through them.

The European form, and why it does not travel

Managers arriving from elsewhere expect a reverse-solicitation exemption in the form they know: a written rule permitting services at the client's own exclusive initiative, with guidance about what the firm may and may not have done beforehand. That form exists in some regimes and is read narrowly even there. It does not exist in the Kingdom's, Kuwait's or Qatar's instruments in any form, and the centres' rules reach the same result by definition rather than by exemption. A manager that applies the form it knows to a Gulf state is applying a rule the state does not have, and the state's regulator reads the manager's conduct under its own rule.

The inbound log and the standard response

A manager who expects inbound approaches designs the file for them. A log of every inbound approach, with the date, the channel, the person, the person's state, what was asked and by whom at the manager the approach was received. A standard response that sends documents only after the approach is logged, sends only what was asked for, carries the centre's required statements, mentions no other vehicle and invites nothing. A rule that the placement team does not follow up an inbound approach with outbound contact in the investor's state until the investor has subscribed or declined. And, for the three Gulf states, a rule that the response is the routing of the approach to the distributor, the licensed person or the count, rather than the documents. That file is the policy. The clause in the agreement is the least of it, and a manager that has the file rarely needs the clause, because the sequence it shows is the sequence the clause describes and the regulator can read the one without the other.

The second-vehicle problem

The successor fund is where reverse solicitation fails most often, because the relationship is real and the manager forgets that the initiative was for a vehicle. An investor in fund one who asks the manager how fund one is going, and is told about fund two, has been marketed fund two. An investor who asks "what else you have" has asked a question the manager answers by marketing. The discipline is that the successor fund's placement is designed as the first was, state by state, with the intermediaries and the clocks, and that no holder of fund one hears of fund two except through that placement. An inbound approach about fund two specifically, logged, is the exception, and even then the Gulf states' routes apply.

The website and the press

A manager's website describes the manager: its approach, its markets, its method, its people. It does not describe a vehicle by name, terms, seed assets or target, because a page reachable from a Gulf state that does so is a public invitation there and an undoing of every later "unsolicited" approach. The same applies to interviews, conference remarks and published notes. A manager who wants to be known writes about what it knows, which is the position this site's own rooms take, and a reader who wants a vehicle writes to ask.

By regime · by reliance	The centres	The Kingdom	Kuwait	Qatar
Room for the investor's initiative	Yes, by the definition of a promotion, on the facts	None; the distributor route is the route	None in practice; permission attaches to the scheme	None in practice; the response is in the count
What undoes it	Published description; agent's outreach; second vehicle; excessive response	Any offer outside the distributor	Any marketing without permission	Any approach beyond the count or after public invitation
Evidence	The log, the response, the sequence	The distributor's record	The licensed person's record	The count's list
Design	Log, standard response, no follow-up	Route to the distributor	Route to the licensed person	Route to the count or the bank

Why regulators read it narrowly

Every regulator that has written about reverse solicitation has written the same warning: the exemption, where it exists, is for the genuinely unsolicited approach, and a firm that builds a business on it has built a business on a fiction. The reason is structural. A marketing regime exists to put a regulated party, a classification or a count between a foreign fund and a local investor, and a broad reverse-solicitation room would let every foreign fund reach every local investor by arranging to be asked. Regulators therefore read the room against the firm's whole conduct: its public communications, its agents, its follow-ups, its pattern of "unsolicited" approaches from investors who all seem to have heard of the fund in the same month. A pattern is evidence of a campaign, and a campaign is marketing.

The Gulf regulators have not needed to write the warning because their instruments leave no room to warn about. The Kingdom's distributor requirement, Kuwait's permission and Qatar's count apply to the offer whatever its provenance, and a manager that argues the investor came first has argued something the instrument does not ask.

The agent question

A manager's agents are the manager for the purpose of every marketing regime, and the question of who is an agent is wider than a manager expects. A placement agent under contract is an agent. A distributor in one state whose staff mention the fund to an investor in another is an agent in the second state. A bank that markets under the central bank's route is the bank, but a bank employee who mentions the fund to a client outside the route is an agent of nobody and a problem for both. A peer investor asked by the manager to mention the fund to its network is an agent. A consultant engaged to "open doors" is an agent. An investor's own adviser, approached by the manager, is an agent of the manager's approach to the investor. The inbound log records, for each approach, whether anybody acting for the manager preceded it, and a manager that cannot answer the question has an approach it cannot call unsolicited.

A timeline, as a type

Month one: the log and the standard response are in place before the fund is notified; the website describes the manager and not the fund. Month three: an inbound approach from an institution in the other centre, logged, answered with the documents, not followed up; the institution subscribes. Month four: an inbound approach from a Saudi institution, logged, routed to the distributor, which notifies and approaches in its own name. Month five: an inbound approach from a Kuwaiti company above the capital threshold, logged, routed to the licensed person, which applies on the institutional route. Month six: an inbound approach from a Qatari family, logged, routed to the bank. Year two: a holder asks about a successor; the response reports performance; the successor is placed by design. Year three: the regulator's review asks for the log; it is produced with the sequence for each approach.

Where it surfaces

At the regulator's review, when the manager's reliance on the investor's initiative is tested against the emails and the agent's records.

At the Saudi distributor's refusal to paper a subscription the manager took on an "unsolicited" approach.

At the Kuwaiti licensed person's discovery that fund two was sent to a holder of fund one.

At the Qatari count, which the inbound responses were never added to.

At the successor fund, when the pattern of "unsolicited" approaches from the predecessor's holders reads as a campaign.

What the response may contain

The standard response is drafted once and used for every logged approach, and its contents are the line between a response and a promotion. It may contain the documents of the vehicle the investor named: the memorandum with the centre's required statements, the subscription documents and the constitution. It may contain the factual answer to a factual question the investor asked: the fund's term, its tier, its valuation day, the manager's licence. It may contain a note of the steps the investor must take to subscribe, which are the classification and the subscription process. It may not contain a description of any other vehicle, a comparison with the investor's alternatives, a model prepared for the investor, a proposal of terms beyond the documents, a side-letter offer, a co-investment mention, or an invitation to meet. A response that stays within the list is a response; one that steps outside it is the manager's communication, and the approach that preceded it no longer matters.

The cost of getting it wrong

A placement found to have relied on an initiative the file does not support is a placement made without the route the state required, with every consequence that follows in that state: the Kingdom's distributor regime breached, Kuwait's permission requirement breached, Qatar's count exceeded or its public-invitation limb engaged, the centre's promotion rules breached. The cost is the same as for any unlawful placement, with one addition: a manager that relied on reverse solicitation has usually relied on it for several investors, and the finding reaches all of them at once. The log and the standard response cost an afternoon to set up and a minute per approach to keep. The alternative costs the register.

The structure paper's page

The structure paper records the manager's position on inbound approaches: that no reliance is placed on the investor's initiative in the Kingdom, Kuwait or Qatar; that in the centres reliance is placed only on a logged approach answered with the standard response and not followed up; that the log is kept by a named function; that the website and the press describe the manager and not any vehicle; and that the successor fund is placed by design. The page is the placement team's instruction and the compliance function's audit trail, and it is what the regulator reads beside the log.

The investor's own view

Institutional investors know the rule as well as the manager does, and the better-run ones keep their own record of who approached whom. An investor's compliance function that receives a memorandum it did not ask for notes that the manager marketed; one that receives documents in response to its own written request notes that it asked. When a dispute arises, or a regulator in the investor's state inquires, the investor's record is produced beside the manager's, and the two either agree or they do not. A manager whose log matches the investor's has a sequence two parties evidence; one whose log does not has a sequence the regulator decides.

Investors also use the rule. An institution that wants a fund it has not been offered may write to ask, precisely so that its own regime's marketing restrictions are not engaged. A manager that responds correctly, with the documents and nothing else, serves the investor's interest as much as its own, and an investor that asked and received a model, a side-letter proposal and a meeting invitation has received what its own compliance function did not want.

Reading the centres' rules for the response

The centres' financial promotion rules apply to the response itself, whatever prompted it. The documents sent must carry the required statements for the tier. The communication must be clear, fair and not misleading on the professional standard. The performance information, if any, must be in the form the rules permit. The recipient must be a person to whom the documents may be sent, which means classified before the documents go, or sent only after classification. A response that satisfies the definition of a response and breaches the promotion rules in its content is a breach, and the log does not cure it.

A file, as a type

An institution in one of the centres writes to a manager on a Tuesday asking for the documents of a named fund it heard of from a peer. The manager's compliance function logs the approach: date, channel, person, state, request. The standard response goes on Wednesday: the memorandum and the subscription documents for the named fund, with the centre's statements, and nothing else. The placement team is told not to contact the institution. The institution subscribes three weeks later. The file shows the sequence, and the centre's rules read the approach as the investor's.

The same institution, eight months later, asks the same manager how the fund is performing and whether there is a successor. The response reports performance in the form the rules permit and says nothing about a successor, because the successor's placement in that institution's state runs through the route designed for it, and the institution hears of the successor through that route two months later.

Four cases, as types

A Saudi institution reads about a manager's fund in the financial press, writes to the manager and subscribes. The manager relies on the approach. The regulations do not contain the exemption the manager assumed; the securities were offered without a distributor; the investor's initiative is not a defence the regulator recognises, and the press article is an advertisement to persons outside the categories.

A Kuwaiti institution asks a manager "what else you have" after subscribing to fund one. The manager sends fund two's memorandum. Fund two has no permit in Kuwait, the request did not create one, and the licensed person that obtained fund one's permit learns of fund two's marketing from the institution.

A manager in one of the centres publishes a page describing its new fund's strategy, seed assets and target return. An institution in the other centre writes to ask for the documents. The approach is a response to a public invitation reachable from that centre, and the manager's financial promotion rules read the page as a promotion to everybody who could read it.

A manager logs an inbound approach from an institution in one of the centres, sends the requested documents only, makes no follow-up, and the institution subscribes. Eight months later the institution asks about a successor; the manager reports performance and routes the successor through its designed placement. The file shows both sequences, and the centre's rules read the first approach as the investor's and the second placement as the manager's, lawfully made.

What each party holds

The manager holds the log, the standard response, the no-follow-up rule and the routing of every Gulf-state approach through the state's route.

Compliance holds the log and the evidence of the sequence.

The placement team holds the discipline of not following up and not mentioning the successor.

Counsel holds the reading of each regime for whether any room exists and how large.

The regulator holds the file and the sequence.

The investor holds its own initiative, which is worth exactly what the file shows.

The sequence

1. The log is opened before the first inbound approach, with the fields the evidence needs.
2. The standard response is drafted: the requested documents, the required statements, nothing else.
3. The no-follow-up rule is given to the placement team in writing.
4. Every inbound approach from a Gulf state is routed to the state's route rather than answered with documents.
5. The website and the press are kept to the manager and not the vehicle.
6. The successor fund is placed by design, and no holder of the predecessor hears of it otherwise.

Questions a manager asks

Can the clause be drafted more strongly. It can be drafted in any terms; it is a representation by the investor, and the regulator reads the sequence rather than the representation.

What if the investor genuinely did approach first. Then the file shows it, and in the centres the approach is the investor's. In the three Gulf states the route still applies to the response.

Does a peer's recommendation count as the manager's marketing. Not unless the peer acted for the manager. A peer who was asked by the manager to mention the fund is an agent.

Can the manager answer questions about the fund at a conference. It can describe its method and its markets; a description of a specific vehicle to a room is a promotion to the room.

What about a data room. Access granted in response to a logged request for a named vehicle, containing that vehicle's documents, is a response; access granted to a list of prospects is an invitation.

Is reverse solicitation ever worth relying on in the Gulf. No. The routes exist and are used; an inbound approach is a reason to open the route, not to skip it, and the intermediary that opens it will ask where the approach came from before it files anything.

Terms used

Reverse solicitation: an investor's own approach to a manager, outside the manager's marketing, as a matter of fact.

Financial promotion: an invitation or inducement to engage in investment activity, made by or on behalf of a firm.

Public invitation: a communication reachable by the public, which undoes the investor's initiative.

Inbound log: the manager's record of every approach received, with date, channel, person, state and request.

Standard response: the reply that supplies only what was asked, with the required statements, and invites nothing.

Second-vehicle problem: the loss of the investor's initiative when the manager mentions a fund the investor did not ask about.

What to read

The financial promotion rules of each centre for the definition of a promotion and of a communication made by or on behalf of a firm; the Kingdom's Investment Funds Regulations, part six; Kuwait's module on schemes and its definition of marketing; Qatar's offering rules and the count. On this site, the marketing and perimeter rooms under Jurisdictions.