EVCA survey points to AIFM danger

Deborah Sterescu
16 March 2010

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While many had been nervously anticipating the decision on the AIFM directive today, it seems that everyone will have to wait a little longer, as the topic was taken off the agenda at the EU finance ministers' meeting, in what is seemingly a positive development for private equity and hedge fund lobbyists. Deborah Sterescu reports

It is suspected that the delay is a result of widespread disagreement and that the extra time will be used for further negotiation. The move is likely to be welcomed by the private equity community who have been lobbying against the directive in its current form for the past few months.

In fact, research released yesterday found that if the AIFM was to be implemented in its current form, almost 70% of institutional investors would withdraw from venture and growth investment either completely or by substantially reducing their allocations by more than 30%, according to a survey conducted by the EVCA.

Obviously, this is largely a result of the third country provisions, which threaten to prevent EU-based investors from investing outside the EU 27. Many in the industry find these proposals illogical and rather unacceptable: "These third party provisions would completely remove the element of choice for EU-based investors on where they can invest and I understand why it would frankly be all too much trouble. I believe, however, that this will all be sorted, as I cannot imagine that such an important institution like the EU would be so myopic and would do something that would defy all logic," says Patrick Reeve, managing partner of Albion Ventures.

The survey, which included the responses of 28 institutional investors such as banks, pension funds and insurance companies, found that 52% of respondents anticipated investing in venture at the same level as previously should there be no change to current regulation, while 8% expected to actually increase their allocations in such a case.

These results follow statements recently expressed by Timothy Geithner, US Treasury Secretary, which emphasize the potential transatlantic rift that would arise from the AIFM as it stands now. Many have spoken out against the directive, including the International Limited Partners Association.

The European Parliament, the European Commission and European Union's Council of Ministers are each due to work on and modify an independent directive before entering discussions in May to finalise the wording.