The Directive on Alternative Investment Fund Managers is to be implemented within European Union member states by July 22. This directive will have an impact on U.S. private equity fund managers that market fund interests to investors in the EU by creating certain reporting requirements and imposing further transparency regulations within the private fund industry.
According to the law firm SJ Berwin, for many managers preparing for the implementation of the directive, a main concern has been how (and by how much) they will need to change their remuneration practices in order to comply with principles set out in the directive itself—provisions which were largely copied across from rules initially written to curb banking bonuses.
The U.S. law firm Weil, Gotshal & Manges recently put out an alert discussing how the AIFM Directive will impact U.S. buyout firms looking to raise money in Europe, recommending that for those investment advisers planning a marketing campaign there could be significant advantages in completing (or at least in planning and possibly commencing) marketing for their next fundraising prior to July 22.
“If a U.S.-based fund manager can finish marketing a fund before 22 July, there will be some advantages—mainly because funds marketed in the EU after July will have some disclosure and ongoing reporting requirements under the directive,” said Simon Witney, a partner at SJ Berwin and the chairman of the European Venture Capital Association’s tax, legal and regulatory committee.
As long as the United States enters into a cooperation agreement by July, U.S.-based fund managers should be able to market their funds to European LPs, although some countries may make marketing harder for funds that are not authorized under the directive, Witney said.
U.S.-based managers shouldn’t be barred from marketing in Europe, but they won’t have immediate access to the pan European marketing passport, which will make fundraising easier for European fund managers once the passports are authorized under the directive.
Shawn Atkinson, a partner in the London office of law firm Edwards Wildman and a member of its international private equity and venture capital team, works mainly with UK offshore and U.S.-managed funds and says that he has not yet seen any noticeable change in the approach to fundraising, given the fact that the applicable regulatory changes have still not been defined.
One of the firm’s fund clients is now in fundraising mode, but as one of a very select group of elite private funds, regulatory change (including AIFM) has had no impact on fundraising, he said. “It has put an extra burden on compliance and therefore made legal teams (both in house and external) more important, but we certainly haven’t seen anyone racing to raise funds in advance of the looming deadlines.”
The bigger issue, he says, is timing of fundraising generally—and that is about the commercial investment decision rather than any increase in compliance burden.
The proof, as they say, will be in the pudding when the directive is implemented in July.
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