Most US chief financial officers in a recent survey said their private equity firms aren’t currently marketing in Europe or outsourcing their Alternative Investment Fund Managers through a European management company. One reason is that investing in Europe might not be worth their time.
In the pfm/SANNE CFO Survey 2018, only 38 percent of US CFOs said their firms are marketing in Europe, and only 24 percent are outsourcing AIFMs through a European management company.
Two options for US managers are to either set up their own AIFM in a country jurisdiction, which could be costly because they would need to employ their own staff, or hire a third-party manager in Europe. A third-party European manager would monitor marketing activities and handle appropriate administrative duties, as well as handle the filings needed when working with regulators.
Both options require US firms to go beyond what they’re used to. If all of their limited partners are in the US, it makes fundraising in Europe not worth the effort.
“A lot of funds that don’t have problems raising money in the US probably tend to stay clear of Europe,” George Arnold, managing principal at Knightsbridge Advisers, a fund of funds firm that mostly deals with venture capital and some private equity, told pfm. “If they have existing European LPs, I think they can continue to talk to them but the complexity of becoming AIFMD compliant is a deterrent if a manager doesn’t need to do it.”
However, newer or less-proven funds are more likely to become AIFMD compliant or familiarize themselves with fundraising in Europe, says Arnold, who is based in Knightsbridge’s Cambridge, Massachusetts office. Established funds could also explore fundraising in Europe in order to diversify their LPs, but “at the end of the day, fundraising is easier if you don’t have complicated regulations,” he added. “This framework is reasonably complicated for US managers, unless you’re able to get the European passport.”
In the same survey, 60 percent of CFOs said they would consider outsourcing their AIFM in the future.