The UK private equity industry received a boost from HM Treasury, which proposed firms be given an additional year to comply with the Alternative Investment Fund Managers (AIFM) directive.
It was expected that firms would have to be fully compliant with the directive by 22 July; a mere 7 months after the European Commission released its final implementing rules.
The proposal, in the Treasury’s latest consultation paper, permits firms a one-year transitional period. Consultation submissions are due by 27 February. The Treasury will then respond to stakeholders in a second consultation paper sometime in early 2013.
The delay provides much needed “breathing space” and creates a much more realistic timetable for firms, John Everett, principal at regulatory consultants Bovill, said in a statement.
The Treasury also came to the rescue of third country (or non-EU) funds by confirming that its private placement regime will be available, and that any restrictions will not exceed the directive's minimum standards.
The Treasury’s approach to the directive largely mirrors that of the UK’s securities watchdog, the Financial Services Authority (FSA), in positioning itself as an “enlightened regulator”.
By keeping the private placement option open, the UK aims to remain an attractive market for non-EU fund managers seeking UK investors until 2015, when there will be the phase-in of the marketing passport for non-EU managers under the directive.
One fund lawyer said the industry would be relieved to hear the news as some feared that countries would stop the private placement regimes. That fear played out in Germany when its initial draft AIFM implementing measures said that all non-EU fund managers would need to be fully compliant with the directive to qualify for a private placement.
However, this “strict” draft legislation may be toned down following considerable lobbying from the industry. “We had real jurisdiction killers before, things that may force you out of Germany. Now, these real killers are mainly gone,” said Christian Schatz, a Munich-based partner at SJ Berwin, about the revised legislation.
The Treasury also does not intend to apply the AIFM's portfolio company and asset stripping requirements to “sub-threshold AIFMs”, which should be welcome news for smaller private equity fund managers that meet the de minimis exemptions under the directive.
Sub-threshold managers in other countries will have to wait and see what approach their respective regulators take in this regard. There had been a concern that some countries would force all private equity funds, regardless of size, to comply with the directive's onerous rules.