Here’s looking at you, KID!

Today, Invest Europe published its updated Guide on the Key Information Document for Packaged Retail Investment and Insurance Products – the so-called ‘KID PRIIPS’ in the acronym form so beloved in Brussels’ hallways of power.

You may wonder why Invest Europe, an association which represents fund managers and investors sufficiently knowledgeable to negotiate fund entry, would spend time on legislation addressing those deemed without said knowledge - who require a simplification of product features.

Well, the EU’s binary distinction between professional “deemed-to-be-experienced” and retail “likely-to-be-abused” clients classifies many offers to high-net-worth individuals, family offices or even co-investment deals as retail offers - irrespective of the level of expertise or involvement of such firms and individuals. 

This makes the KID - a six-pager containing information on the risk profile, expected performance, and costs of a product - a mandatory, often costly document that many managers must prepare. Marketing to a wealthy entrepreneur? This will likely require a KID. Offering your employees some part of the carry? A KID will have to be prepared. Better yet, a KID will have to be carried.

The use of the KID in our industry may also become more prevalent as increasing numbers of private equity managers see a greater interest in marketing to other types of sophisticated, or “mass affluent”, clients.

New KID rules – which become applicable as of 1^st January 2023 – are not fundamentally overhauling the existing regime, although Invest Europe members should be mindful of adapting their frameworks so that they remain compliant when producing a new document. For example, changes on performance fee, on the presentation of carried interest, or on calculation metrics merit being looked at by those who seek to offer their products to non-institutional clients.

Beyond the current update – to which our Guide offers an easy entry point - the future may hold more fundamental changes for those who do not only market to institutional clients. A new review of the KID framework could be expected as early as 2023 – although this idea remains controversial and may never see the light of day.

The European Commission is also in the final stages of developing its ‘Retail investment Strategy’, which could encompass a wide range of initiatives, from changes to rules on inducement and stronger oversight on fees charged to clients.

But the most fundamental change of relevance to our asset class should come from the review of the investor categorisation. This debate provides an opportunity to re-adjust the oversimplified distinction between a professional and a retail client… and save many managers from the hassle of preparing a KID for their sophisticated investors.

There is a political will to change the rules: recent ELTIF and AIFMD reviews revealed an interest from at least some policymakers to craft a better definition for sophisticated investors.

If we can make sure that this trend materialises - then we may be looking at fewer KIDs in the future, and it may be the start of some beautiful friendships.