EVCA task force calls for EUR1bn threshold

01 September 2009

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Two months on from the launch of the European Commission's proposed Alternative Investment Fund Manangers (AIFM) Directive, the EVCA Brussels task force has published its formal response, which calls for an increase in the minimum qualifying threshold to EUR1bn.

Unsurprisingly, the paper reiterates the concern that there is not enough differentiation in the measures with regard to private equity funds and hedge funds, despite the fact that the proposals do clearly recognise the distinction between the two asset classes. The single separating factor, the higher minimum threshold of EUR500m (against EUR100m for leveraged vehicles), is seen to be insufficient: the response calls for "more tailored provisions on capital and depository requirements, independent valuation, requirements relating to risk and liquidity and procedures for delegation of authority".

Moreover, the thresholds themselves are again criticised for targeting mid-market (and a small number of venture) funds; a fact that many believe will cause private-equity backed SMEs to be placed at a competitive disadvantage to their peers. Indeed, the extent of the reporting requirements is called into question for the extra costs it will impose on fund-owned businesses at all levels and the paper argues that these rules should be relaxed.

So far, so standard. The tone changes, though, when discussing the new rules relating to "third country" funds. The proposals, ostensibly an attempt to prevent firms domiciling vehicles in non-EU tax havens, seemingly prevent non-EU managers from raising or operating a fund in the EU (US investors take note), while also impeding European managers' ability to raise funds from outside the EU.

The task force argues that these rules would create "unnecessary fragmentation of the fund market in contradiction with free movement of capital" and calls for their removal. It also suggests the introduction of a "grandfathering" clause for existing funds, without which many could end up being terminated "with disastrous consequences for the industry and its portfolio companies".

Despite these issues, however, the response does concede the necessity of regulation "to control systemic risks and ensure appropriate investor protection". This is likely to be important: showing understanding of and cooperation with new legislative measures is going to be key to gaining support for amendments, without which the Directive represents a serious threat to the industry.