Dutch PE industry embraces regulation

The financial crisis sparked an explosion of regulation in the financial services sector; and more than ever before, private equity too was hit. While this largely reflects the impact of private equity and venture capital on local economies, several industry associations argued that additional regulation largely inhibits the opportunism upon which private equity thrives, which in turn stifles the growth opportunities that it creates for the economy.

While industry associations in the UK or Sweden loudly voice their scepticism, the Netherlands seems to embrace the new rules. The local industry's optimism regarding enhanced investor security and improved market conditions clashes with the negative outlook prevalent in other regions: for instance the recent unquote" Nordic survey shows that 74% of respondents consider the AIFMD to have a negative effect on business, while only 9% believe in its positive impact. So why are the Dutch so keen on the new rules?

"Given that we are being regulated, let's do it at the lowest possible costs for institutional investors. And without pushing smaller investment fund managers out of the market: they have nothing to do with the issues that caused this regulation," says Tjarda Molenaar, managing director of the NVP (Nederlandse Vereniging van Participatiemaatschappijen), the Dutch private equity and venture capital association. Molenaar admits that the industry has a notoriously bad reputation – so eliminating loopholes, especially with regard to tax benefits, would benefit the industry's trustworthiness, which in turn would make it easier for PE firms to operate. "We have learned lessons about gold-plating European directives when implementing them into Dutch national law," Molenaar says, lessons which can only be helpful for future legislation. The Netherlands is consistently among the top five biggest markets for private equity in Europe, but the rigorous implementation of directives could make it even more competitive among its neighbours.

In the UK this view is widely disputed: "This Directive imposes an additional regulatory burden on our industry," insisted then-chief executive of BVCA Simon Walker when the AIFMD text was agreed upon in 2010. German association BVK on the other hand stressed at the time that more legal security for investors makes the market more attractive and therefore increases activity. The BVK said the AIFMD was "long overdue", albeit too heavy a burden for smaller PE houses, which in turn could threaten support for SMEs.

So do the Netherlands want more regulation than everyone else? Yes and no. Molenaar adds that past regulation has often been too strict, introducing too many additional rules that complicate more than they benefit. At the same time the NVP, like the BVK, stresses that the finer details of industry dynamics need to be reflected in national legislation.

Indeed, the devil is in the detail. With the big picture in mind, current regulatory proposals seem to forget about the fine differences between, for example, small and large funds. In connection with the AIFMD, Molenaar stresses that there is need for an additional criterion in Dutch national law that protects small vehicles from being thrown in with the others. The current law proposal does not differentiate between funds of different sizes above a threshold of €100m or €500m depending on leverage – this disregards the fact that smaller funds cater to different, more informal investors with very different capital prerequisites.

Consensus among the various trade bodies or no consensus, the new regulations aim to be a blanket framework to strengthen Europe as a market and facilitate growth. Whether or not this goal is achieved will start becoming clearer in 2013.

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• Topics
• Regulation
• BVK
• BVCA
• Netherlands
• Germany