AIFMD prompts small US firms to bypass EU LPs

The Alternative Investment Fund Managers Directive (AIFMD), created to harmonize regulations for marketing private equity funds in the European Union, is proving more manageable for large private equity firms with ample resources, leaving small firms to seek capital elsewhere.

“It’s a movement toward harmonization of regulations for marketing in Europe,” said Bronwyn Bailey, vice president of research at the Private Equity Growth Capital Council (PEGCC), last week at the ACG Women of Leadership Third Annual Summit in New York. “Unfortunately, it has created less harmony and more of an unleveled playing field.”

Bailey noted that the PEGCC’s larger members, some of the biggest US private equity firms in the industry, decided to dedicate resources toward AIFMD and to go through the process of registering in each country's national private placement regime (NPPR) to be able to market their funds there.

But some of the smaller firms that are PEGCC members are simply bypassing EU LPs, particularly if they only have one or two LPs based in Europe or if their European LPs did not commit significant sums in past funds.

“They are actually saying, ‘We’re not going to market in Europe,’” Bailey said, noting that they are instead turning to Asian LPs. “There’s lots of capital in Asia, especially from sovereign wealth funds. It’s having an impact on the IR side of the business.”

Bailey also noted that a lot of LPs eager to continue to invest in some US mid-market funds are using the reverse solicitation option.

“A lot of LPs know about the registration and the difficulties of marketing in Europe and they are asking the firms about the new funds,” she said.