Q&A: Euro worries

How worried are you about the AIMFD?

Many of our concerns have been addressed, but there remain areas of concern. For example, the recommendation for the calculation of “own funds” (the regulatory capital to be held by the GP) is

Dörte Höppner

currently only used by the most sophisticated credit institutions and investment banks and is unsuitable for closed-end, unleveraged funds. Also, the use of third-party depositaries still has the potential for “ex-ante” control, with investment decisions being taken from the GP and handed to a custodian.

Are you in favour of the EU fundraising passport (the voluntary regime that will allow VC funds to access the EU marketing passport without having to opt-in to the AIFMD)?

As this will be a “regulation” and not a “directive”, it will have uniform application across all the EU 27 member states, so it’s vital we continue to ensure the scope of the investment strategies covered by this regime reflect the operating realities of small funds.

Are European VC firms currently too reliant on state cash? 

In H1 2011, government agencies accounted for over 50 percent of the investment in VC funds. In the current economic climate, it’s vital that national public and pan-European investors, such as the EIF, continue to support venture capital if we are to build the next generation of Europe’s high-tech goliaths. But longer term, we have to attract private sector investors back to venture capital.

The Commission has produced its financing programmes for equity investment in growth and innovation. EVCA has argued that these programmes should include private sector-managed funds of funds, with the Commission investing alongside private sector investors. 2012 will see a dual approach of continuing technical discussions with the Commission and fund-of-funds managers, while making the political case for public/private sector partnerships with the European Parliament and Council.  

You’ve also been lobbying hard against the Solvency II capital adequacy rules for insurance companies that invest in private equity. Why?

The current proposals will affect the ability of investors, such as pension funds and insurers, to commit capital to private equity and other long-term asset classes. Solvency II, which is now at the implementation phase, will require insurers to apply a base shock of 49 percent to their investments in private equity when calculating their solvency capital ratio. EVCA and the national associations are challenging the basis for this calculation on a technical level, while working to try to recalibrate the risk weighting for private equity. In 2012, the implementation date of Solvency II will be decided, with the potential for a transition phase with much lower risk weightings. In addition we are working to develop risk-measurement guidelines for private equity that could be used by insurers in calculating their own internal models. If approved by the regulator, these could significantly reduce the standard risk weighting for private equity.

The Commission is also reviewing European regulation for occupational pension schemes, with a view to applying capital adequacy requirements similar to those for insurers. What are the dangers of this?

The application of “marked to market” valuation principles will encourage a flight to short-term investments, exacerbated by potentially punitive risk weightings for asset classes such as private equity.
This would cause pension fund trustees attempting to meet long-term liabilities with short-term investment strategies. In a low-interest environment compounded by the demographic challenges of ageing populations, fixed return or defined benefit schemes will find it increasingly difficult to meet their liabilities without the option of investing in long-term, growth-orientated assets. We’ve responded to the first consultation from the European Insurance and Occupational Pensions Authority and will continue through 2012 to make the case for long-term investment and for a thorough assessment of the economic impact of the proposed revisions to the IORP Directive.