A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

PERSPECTIVES FOR THE INDUSTRY

A ssessment of impacts It is still early days for the AIFM directive but we can reasonably think that, should the AIFM directive be enforced, the new regulatory landscape for non-UCITS funds set up within the Eu- ropean Union would have a significant impact on the private equity industry in most European jurisdictions. Indeed, the amended proposed draft plans to impose to alternative investment managers com- pliance with a series of very restrictive requirements in order to obtain the passport, for in- stance in terms of: • Authorisation: Managers of AIF domiciled in an EU member state would be required to obtain authorisation in accordance with the directive; • Own capital and internal organisation; • Ongoing supervision: The AIFM would be required to provide the competent state authority with regular update information on the identity of the AIF it manages, the organisational and risk management arrangements it has in place, the markets and assets in which it would like to invest, its principal exposures, performance data and concentrations of risk; • Transparency requirements: In order to protect investors, specific information would have to be communicated before investment including a description of the valuation procedures and the liquidity risk management; • Restrictions and limitations on leverage: Where AIFM employ systematically high levels of leverage in one of more of their AIFS, the directive outlines the disclosure that must be made to investors and regulators. Furthermore, until now, most private equity funds have been structured under ordinary, non- specific, legal forms that are governed by the commercial and companies laws of the member states. The draft directive would transform these ordinary legal structures into true funds with authorised fund managers, mandatory depositaries and a whole set of regulations inspired by those applicable to UCITS, although the AIFM directive aims at regulating fund managers and not the funds themselves. It should be noted that France constitutes an exception since, from the outset, French FCPR venture capital funds have been classified as UCITS under internal French law. All authorisa- tions, legislation and regulations are already fully applicable to them. Furthermore, out of the 27 European Union countries, France was the only one to consider that the MiFID directive should apply to funds. Private equity managers are not used to the level of regulation that could be implemented by the draft directive as vehicles used to promote such type of investments are often very flexible structures. Thus, they will have to fully understand the goals and the positive impacts of the new regulation. Although the draft directive aims at establishing a harmonised EU framework for the authorisation and operation of the AIFM in Europe, it radically alters the current man- ner in which AIFMs operate in Europe. Such a huge change could create panic among private equity managers and, as a consequence thereof, drive them to offshore jurisdictions. Furthermore, there are still some provisions in the directive that have to be clarified. Fund struc- turing experts will have to follow the updates and developments in relation thereto daily. Their support to clients should be crucial to face up to consequences of the directive.

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