Location, location, location

01 January 2008

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Several US mega-funds have already listed on Euronext Amsterdam (EA), making this market a serious contender for anyone looking to raise substantial amounts of capital. "EA offers a good balance between transparency and confidentiality of private information and Euronext's recent merger with the New York Stock Exchange (NYSE) is both helpful and reassuring for US-based investors," explains Bob Long, CEO of Conversus.

Euronext Amsterdam's appeal for investment funds has ignited jealousy among rival European markets, which are now at various stages of completion for their own investment fund-friendly markets.

LSE's SFM is an EU-regulated market for highly specialised investment entities seeking to raise funds from professionals and institutional investors. While there are few technical differences between the market requirements to list on SFM and EA, the admission process is deliberately simpler. Prospectuses can be 'passported' from other EEA competent authorities, and listing agents do not need to be FSA-approved. But the key attraction of this new market lies elsewhere. "London is a leading global financial centre," explains Andrew Wallace of the London Stock Exchange, citing the City's most impressive statistics. "London is home to 42% of global foreign equities trading and 36% of global derivatives turnover; 255 foreign banks are based here as well as 80% of Europe's hedge funds, not to mention the convenience of a central time zone."

Wallace is also convinced that, because of the City's international make-up, SFM will be the market of choice for institutional investors and wealthy individuals from emerging markets such as Russia, India and China who will be looking to access Western alternative asset management techniques through quoted funds. "London's investors are wiser and are used to listed private equity, meaning the NAV/share price discount is smaller there," adds Olivier Millet of OFI Private Equity.

The market, which has been open for admissions since 1 November, is said to have received 'significant interest' from US, Asian, Indian, Russian and European investors. According to Wallace, around 50% of enquiries have concerned private equity, with the remainder relating to real-estate, hedge funds or infrastructure notably.

Although there is some optimism among private equity firms about SFM's longer-term prospects, few are keen to be the first to list. "There is likely to be a natural reticence, which is common for new products" concedes Wallace.

Some French private equity firms have attempted to list FCPR vehicles on their domestic stock exchange, but were stopped by obstacles. "Although FCPRs can officially be publicly-listed, there is no legal framework in place to enable this to happen," regrets Nathalie Duguay of SJ Berwin. Current legal hurdles include the fact that FCPR vehicles, unlike Societes de Capital Risque (SCR) and corporations, are not legal persons. Another constraint is that the existing legal provisions require that the fund guarantee that the trading price for the fund shares will not vary from the liquidation value of such shares as determined by the fund. The absence of legal text has prompted law firms to lobby the French Government into action. These efforts have reportedly redoubled since Amsterdam and London's progress in attracting listed private equity investment companies.

The precedent set by investment firms quoted on EA gives this market a clear advantage over its rivals, but one wonders how crucial this will prove to be in the long run. "Amsterdam clearly has a lead, but it is not insurmountable," concludes Long.

Key benefits of the Specialist Fund Market

(source: London Stock Exchange)

- Cachet and profile of a London quotation

- No domicile restrictions

- Regulated by the Financial Services Authority

- Ability to tailor your prospectus to investor needs

- Accepts sophisticated structures and/or securities

- Regulated market for UCITS directive

- Access to efficient trading - TradElect

- Flexibility of an EU-regulated market

- Access to Europe's deepest pool of capital (a total of more than $12,000bn total assets under management in London, compared with approximately 4,000 in Paris).