AIFM debate nears conclusion

The bitter negotiations over how private equity firms operating in the European Union should be regulated are near to an end, according to the head of the European Private Equity and Venture Capital Association.

A deal could be struck as early as this week or the next, Javier Echarri, EVCA’s secretary general, told delegates at the 2010 EVCA Buyout Forum on Thursday.

The final “compromise text” – which brings together two different versions of the EU Directive on Alternative Investment Fund Managers – is “something we can work with”, said Echarri, noting that many of the most draconian measures had been either softened or removed.

Europe: regulation nears

Despite introducing his speech as “something of a cold shower” for the assembled buyout professionals, he said that once the directive is rubber-stamped, the private equity industry would be able to “go back to business … not business as usual … but back to business”.

EVCA has been behind a concentrated lobbying effort to ensure that the new rules – originally proposed in 2008 – do not unduly damage the industry or its portfolio companies.

It is now almost certain that the new regime will require private equity firms to – among several other measures – make disclosures about themselves and their portfolio companies, appoint a depository and wait at least 24 months after investments are made before taking any actions which could be construed as “asset stripping”. The directive will also regulate managers based outside the EU who wish to raise capital from institutions within the region.

One measure causing particular concern is the capital adequacy requirement, said Echarri. “This one hurts,” he said. Under the latest draft, firms will have to hold at least €125,000 capital. For funds larger than €250 million, the figure increases by 0.02 percent of the fund’s value, with an upper cap of €10 million. This could prove a “seriously costly hurdle for first time funds”, said Echarri.