EUROPE - Commission proposal launch lacks substance

The anger stems from the broad scope of the directive, which will cover all private equity managers with more than EUR 500m in funds under management. This, the EVCA says, could result in around 5,000 portfolio companies across Europe being forced to meet the new disclosure requirements. According to the BVCA, which estimates that anywhere up to 1,000 UK companies will be subject to the new rules, this will be a costly exercise: estimates range from £25,000-30,000 for UK businesses.

As yet there is no confirmation on press reports that suggested last week that any business with annual turnover in excess of EUR 50m (or a balance sheet total of EUR 43m) that is owned by a qualifying fund will have to comply with additional disclosure requirements. However, EVCA secretary general Javier Echarri suggests that this is likely to be the case: "I've seen several drafts and those numbers haven't been changed."

These thresholds, it is argued, mean that it is no longer larger businesses that are being targeted but core SMEs. Aside from merely a cost issue, these businesses will be put at a significant competitive disadvantage from their peers to whom the rules will not apply. "This essentially provides a disadvantage to a business being owned in a fund," asserts BVCA chief executive Simon Walker.

Moreover, at this stage it does not seem that the proposals will discriminate according to where the assets in the fund are held, meaning it will apply even if the assets are held outside of the EU. "This will provide a disadvantage to basing a fund in the EU, and it is particularly bad news for the UK as nearly 60% of the entire European private equity industry is based here," Walker continues.

Interestingly, the size of funds being targeted is double the EUR 250m that was predicted in the lead up to the launch. However, this is seen as small comfort by many. "EUR 500m may be half the problem we had anticipated but it is still a big problem. I would also expect a counterblast from the socialist party as this proposal goes through the various stages; in no way are we off the hook on that yet," says CBI secretary general John Cridland.

Matter of principle
But despite all these arguments, the thing that seems to have got under the skin of most is the failure of the EU to properly separate private equity from hedge funds. In bringing in a single 'Alternative Investment Fund Managers' directive, many feel that private equity has merely, in the words of Echarri, "been caught up in something that was aimed at a different asset class".

Some level of differentiation is offered by the fact that there are two different thresholds: EUR 100m for leveraged funds, which is broadly directed at hedge funds; and the aforementioned EUR 500m, which applies to all unleveraged funds with at least a five year investor lock-up period. Whether or not mezzanine funds, which are often leveraged, will be caught up in the stricter rules is not yet clear.

Private equity in general seems to feel victimised, with politicians confirming that it poses no systemic risk but regulating anyway to gain political brownie points. "The whole thing reads like it was aimed at hedge funds with private equity added as a political afterthought. McCreevy has highlighted the differences but he has still applied the same broad brush stroke measures," Cridland argues.

This political wrangling will continue for some time yet. The first reading of the proposal is likely to take at least six months, and if there is no consensus a second reading could take far longer. "This is not an area where any political consensus has been reached and it may therefore be a long and complicated game," comments Walker.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Regulation
• UK / Ireland
• DACH
• Nordics
• France
• Southern Europe
• CEE
• Benelux