On marketing listed funds in Europe

HarbourVest Global Private Equity (HVPE) is a listed private equity portfolio investing in and alongside HarbourVest funds. Last year the company was admitted to the main board of the London Stock Exchange and in December it was included in the FTSE 250.

As a listed company with assets managed by an alternative investment fund manager it must take great care to ensure it complies with the different regulations. pfm caught up with Richard Hickman, HVPE’s director, investment and operations, to find out how the company navigates the landscape.

As a listed portfolio marketing your shares on a secondary market basis, is it clear whether you need to comply with AIFMD?

Hickman: A number of regulators, for example the UK’s FCA, have made helpful public pronouncements on this point. Our experience suggests, however, that in some countries the marketing of investment company shares on a secondary basis is less commonplace than it is in the UK, and there are various law firms providing differing interpretations regarding the status of this activity under AIFMD. Generally, we would consider that secondary trading of shares is not considered to be marketing under AIFMD, and taking legal advice on the applicability of AIFMD on our marketing activities has been essential in ensuring that the company is compliant.

Which markets will you be actively marketing in throughout Europe?

Hickman: The UK, Switzerland, the Nordics and the Benelux regions have shown an appreciation of the advantages of the listed investment company structure. This is generally because these countries have similar entities available on their domestic exchanges, so there is a degree of familiarity with the concept. As a result, these have proven to be the most fruitful markets for HVPE, and so we have chosen to focus our European marketing efforts in these locations.

Is this purely based on market appetite, or are there regulatory reasons for this?

Hickman: Primarily this is market-led, though in our experience investor demand has been influenced by the ability to market in that jurisdiction, the local regulatory treatment of listed vehicles, and, of course, the tax regime. For instance, a listed corporate vehicle may not be the most tax efficient investment for certain categories of investor in Germany, and consequently there is very limited appetite for listed private equity structures.

What does all this mean in terms of marketing to UK investors?

Hickman: The UK remains, by some margin, the largest market for us. HVPE appeals to a broad range of UK investors, from individuals right up to large institutions. Listed investment companies have had a presence in the UK market since the late 19th century, and are currently enjoying something of a resurgence following the Retail Distribution Review. This served to level the playing field with open-ended funds by restricting commission payments to financial advisers.

Looking at the wider market, would it be fair to say that EU investors will miss some of the best investment opportunities as a result of AIFMD?

Hickman: It is certainly possible that some non-EU fund managers will be deterred by the extra requirements imposed by the AIFMD and avoid Europe completely. A number of our peers in the listed private equity sector have cut back on their marketing efforts in Europe in the last twelve months. A trend we have observed is that European investors are still being targeted by non-EU fund managers via the national private placement regime, but this is only happening in a small number of countries.