Desperately seeking clarity

Last week, the European Private Equity and Venture Capital Association (EVCA) published a guide for fund managers seeking answers on the Alternative Investment Fund Managers Directive (AIFMD).

Guidance is certainly needed. Non-EU fund managers tell PE Manager they are assessing the EU landscape on a daily basis; and that their marketing, IR, legal and compliance teams often encounter uncertainty about what the AIFMD means in different jurisdictions.

In practical terms, this has led some non-EU fund managers gearing up for a fundraising to contemplate writing Europe off entirely until there is more clarity on the issue. Smaller managers – or those without many European LPs – are particularly likely to fall into this camp. Indeed, some said as much on stage during a recent summit hosted by the British Venture Capital Association. That’s somewhat surprising, given that so many GPs are keen to expand their universe of LPs in this difficult fundraising environment.

Nonetheless, the sentiment is understandable. The introduction of AIFMD has caused individual EU states to examine their existing private placement regimes, which non-EU managers must continue using until at least 2015 (the time when a marketing passport will be made available to them). As a result, the directive has raised concerns that some EU states will tighten their private placement rules to match certain elements of the AIFMD – or even go beyond it. It’s an ironic outcome, considering one of the directive’s primary objectives was to harmonize the patchwork of private placement rules across the EU.

The aim of the EVCA publication is to give GPs a handy guide to EU fundraising post-AIFMD. It probably won’t satisfy every question a GP may have on the matter, but it's a solid run-down of what to expect when entering the EU with marketing documents in hand – and also allows GPs to start asking their advisors more informed questions. That should save time and expense.

Take Germany, for example. The guide says non-EU fund managers seeking capital in Germany must now appoint a depositary for the safekeeping of client assets. This isn’t exactly a well-known development outside the EU, but it’s a factor GPs hoping to expand their LP base into Germany will need to consider.

Or take Denmark and France. EVCA’s report (made possible by the trade body’s relationships and network of industry experts across the continent) clarifies that GPs can bypass certain rules in these two countries’ private placement regimes by taking advantage of reverse solicitation (i.e., when investors take the lead during the marketing process). Many fund managers may look at these two countries differently as a result.

That said, this is a moving target; AIFMD-inspired rulemaking is ongoing, which means any guidance will invariably be subject to change. So it’s perfectly feasible that many non-EU managers will continue to ignore those EU jurisdictions that fail to provide enough clarity on their private placement regimes – at least until the marketing passport is introduced in 2015.

The EVCA guide could be a game-changer for some of those managers who have been telling us that there are just too many short-term question marks over marketing in Europe. But for many others, the lingering uncertainty will still be too much. EU regulators need to start recognizing this – or they risk shutting their investors out from global investment opportunities.