Fund services hot topics: Regulation

GPs have been bombarded with relentless regulation over the past decade and this looks set to continue into 2021.

“We don’t expect the proliferation of regulation to ease,” says Alex De Santo, group head of private equity at Crestbridge. “So, it’s important that technology is leveraged to the greatest extent possible to ensure ongoing compliance.”

Elaine Chim, head of private equity for America and APAC for Apex Group, says GPs see staying on top of regulations – not only to comply, but to enable their business – as a full-time job, and they see value in appointing a service provider that spends time working directly with regulators and understands the supervisory environment across multiple jurisdictions. “This can ensure that private equity firms remain competitive and aware of any changes to the regime in advance, allowing them to adapt more easily and remain in full compliance at all times,” Chim says.

James Duffield, head of business development at Aztec, points to DAC 6 – designed to close perceived loopholes in EU tax legislation – and the EU’s recently implemented ESG regulation, SFDR, as areas the firm is paying particular attention to right now. “We also await AIFMD II and whatever amendments that will bring,” he says.

Jonathan White, global head of fund sales at Intertrust, adds that remote working is also attracting its own set of regulatory challenges. “In my mind, this is more about regulator focus than regulatory changes,” he says. “While the working from home model is heralded as here to stay, the regulators realize how this impacts a GP’s security perimeter and will focus heavily on understanding how the GP is mitigating risk.”

Regulators are increasingly scrutinizing the movement of money. Nikolaos Perros, head of private equity services at Citco, says: “The bad guys used to be easy to spot. They were the ones in masks holding guns. It is a lot harder in today’s world of hacks and phishing.“

On the bright side

Of course, not all regulatory changes are bad news. Case in point: the establishment of new private fund structures as jurisdictions like Hong Kong, Singapore and Ireland jostle to attract re-domiciliation and new shops. “The greater choice of domiciles will inevitably lead to competitive pricing and lower costs for managers,” says Chim.

Most recently, changes to Ireland’s ILP Act increased structural flexibility and cost efficiency by allowing multiple sub-funds within one structure.

Chim says these changes will ultimately translate into faster deployment. “We are already seeing increased interest from private equity managers looking to establish parallel European structures to their existing offshore funds, in Cayman or Delaware, for example, in order to distribute to European investors via the AIFMD passport.”