MiFID changes the rules in France

The implementation of MiFID in French law has brought about a welcome change for the marketing of limited partnerships by general partners which was previous extremely complicated to achieve. The direct transposition of the MiFID however led to some ambiguous phrasing which could prove complicated to interpret and apply correctly within the confines of the French legal system.

Under previous French law, limited partnerships, due to their closed-ended nature could not be publicly marketed as they did not qualify as financial instruments. As a result they could not be classified by the AMF as a collective investment undertaking (OPC) which would have allowed public marketing. This meant that it was impossible to benefit from the private placement safe harbour enjoyed by 'qualified investors'. The only way around this legislation was to take advantage of the tolerance of passive marketing in French law which is when an investor takes the initiative to directly contact an issuer with the intention of offering subscription to a fund.

The fundamental change which has occurred lies in France's adoption of MiFID's definition of transferable securities which is described as "including shares in companies and other securities equivalent to shares in companies, partnerships or other entities". After consulting the AMF, Pinkham confirms that "the ambiguous use of the words 'other entity' here does indeed encompass limited partnerships". As a result this amendment qualifies limited partnerships as a financial instrument under the Code Monetaire et Financier.

What does this mean? According to Pinkham it means that there are now a couple of possibilities for private equity limited partnership. In a closed-ended investment vehicle, the marketing of its interests in France will be subject to the French public offering rules, and land under the private placement safe harbour. For an open-ended investment vehicle, however, it will qualify as an OPC and will need authorisation from the AMF before proceeding with the marketing of its interests in France.

Private placements in private equity LPs interest is now a possibility which my benefit for example a number of European funds. Pinkham concludes: "This is a step forwards for the French private equity market which is so often held back by tax and legal red tape."

George Pinkham is senior partner of SJ Berwin's Paris office and head of the office's funds formation group.

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• Topics
• Regulation
• France