BVCA: AIFMD “still damaging”

"The current proposal [of the AIFMD] is far better than what we saw in April 2009, but still damaging" says BVCA head of international public affairs Joe Steer. Yet, the appropriateness of the proposal does not make up for the negative impact it could have on investors. The industry trade body - which once referred to the AIFMD as the "defective directive" - is wary of over-regulation resulting in a further decline in deal activity and available capital.

The BVCA, just like its European counterpart EVCA, cautiously welcomed the changes to the AIFMD proposed by the European Securities and Markets Authority (ESMA) last week. "ESMA's advice is, in places, relatively workable" says Steer, who nevertheless considers the implementation deadline of July 2013 far too close for investors to adequately prepare. The issue of depositories in particular is sparking much debate in the community. EVCA's Karsten Langer told unquote" last week that they risk "interfering with the investment decision". "The proposed system poses definite challenges for the private equity industry and could potentially be unworkable," agrees Steer. "Investors have not been crying out for depositories."

Similar worries arise in connection to the Solvency II capital requirements, which will make it difficult for private equity firms to raise future funds. For many, the lack of demand for regulation reflects the fact that the level of security for investors is high enough under current legal provisions. Steer stresses the importance of effective regulation, but states effectiveness seems impossible to achieve, as the industry is often misunderstood and mixed in with risk-loving hedge funds.

Some might argue that a lack of regulation in the past caused this misunderstanding, enabling alternative investments to grow into what is now referred to as the shadow banking system. Could a tighter regulatory framework help clear misconceptions?

"There might be a marginal benefit for investors and hopefully private equity will become a more attractive asset class," admits Steer. However, the association's reluctance to embrace new regulations stems from the uncertainty that they have fostered in the industry for the past three years. Steer adds: "Together with the state of the economy, that makes future growth tremendously difficult."

Overall, one could argue that the European economy should be strengthened, not weakened, by the new regulatory measures. But the uncertainty surrounding their implementation could inhibit economic growth. "It's not the best idea to inhibit an economy that is trying to grow its way out of a recession with too much regulation," says Steer. "We're shooting ourselves in the foot here."

 

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• Topics
• Regulation
• BVCA
• EVCA
• AIFM Directive