The slew of regulation affecting private equity fund managers will have significant outcomes for their businesses, concluded a panel at the PERE conference. Ken MacNaughton, chief financial officer for Benson Elliot, said: “The successful long-term managers will be the ones that prepare now. It is not a compliance matter; it is a business issue.”
MacNaughton said derivatives legislation the European Market Infrastructure Regulation (EMIR) was “a huge issue for funds” and had caused his firm to change its debt management strategy Ernst & Young real estate partner Mike Hornsby said the AIFM (Alternative Investment Fund Managers) directive, which comes into effect in 2013, would become a ‘European brand’,
just as UCITs funds had. Sponsors of AIFM-regulated funds will be able to distribute the product across Europe. “UCITs took eight years or so to create a global investment product; you need to think five years’ ahead,” he said. “German open-ended funds, for example, account for 30- 40% of Europe’s real estate asset management market and are mainly distributed domestically.
“I’d be surprised if they don’t try to benefit from this ‘passporting’ regime and distribute further afield.” Clifford Chance partner Simon Crown said AIFM affected a range of issues, from segregating risk management practices to requiring more extensive disclosure and regulating remuneration. MacNaughton said the risk management provisions could “split teams that usually work together in a collective way”.
Dörte Höppner, secretary general of the European Private Equity and Venture Capital Association, said the AIFM framework had been approved, but five working groups would finalise 99 implementing issues by the autumn, for publication in November. She added that “there was a rumour” that the AIFM directive regulator had a list of organisations it thinks should be regulated, including subsidiary advisers. “So you have to think about your subsidiary structures,” she advised. She also said that senior management needed to set aside more regulatory capital now, as it would be needed.