The AIFMD’s impact on EU investors accessing Private Equity

In September Jerome Lussan, CEO of Laven Partners, participated in a Panel Discussion at The Regulation Summit of the SuperReturn CFO/COO Forum 2015 in Amsterdam. The Panel Discussion focused on the real impact of the AIFMD on LPs in the private equity industry.

Below is an overview of topics discussed by Jerome with Hans van Swaay, Partner at Lyrique Private Equity, Richard Awbery, Partner at Atlantic-Pacific Capital, and moderator Gus Black, Partner at Dechert LLP.

The three panellists shared their views on whether the AIFMD has resulted in fewer attractive investment opportunities and less marketing activity, and whether LPs saw any tangible benefits from the AIFMD regulation (if any at all). To nobody’s surprise, the panellists were not overly enthusiastic about the market changes that had resulted from the implementation of the AIFMD in the sector.

The panellists noted that the current mood of some European LPs was pretty much the same as was reflected in the response of ILPA to ESMA’s call for evidence on the AIFMD passport and third country AIFMs. For instance, ILPA reported that 52% of its members surveyed believe that the AIFMD requirements have in fact had a somewhat negative or very negative impact on the LPs in Europe. The majority of the LPs in Europe (86% of respondents) also thought that the marketing activity among non-EU AIFMs had decreased since the implementation of the AIFMD and 43% reported that efforts to initiate contact with non-EU AIFMs had been rebuffed due to compliance concerns.

The panellists agreed that one possible reason for the perceived negative impact is the prevailing view that the AIFMD is an unnecessary protection for the LPs and that it will lead to reduced choice and increased compliance costs. It appears that few LPs are seeing any real benefits as they know and understand the risks of private equity which unlike more liquid traded funds is not subject to the same form of abuses.

Mr Lussan reminded the audience that the AIFMD adopted a “one size fits all” approach which was not designed for the private equity industry. Despite the efforts of the industry in the wake of the AIFMD, the directive currently includes only a few provisions tailored to the private equity, notably on leverage/borrowing and respective thresholds before managers must comply with the law.

On the brighter side, the Panel noted that the impact of the AIFMD on private equity allocations is not yet visible in actual terms. According to the 2015 Preqin Global private Equity and Venture Capital Report, the proportion of Europe-focused funds that are being raised by non-Europe based fund managers remained steady at 25% between December 2013 and January 2015. The panellists wondered if the AIFMD impact was yet to come or whether the lack of access complained about by European LPs would be resolved somehow.

The Panel rounded off the discussion by highlighting that there was some benefit of having the AIFMD. It was noted that some managers had not behaved that well with LPs, notably in relation to fees (or hidden fees). It was also said that the segregation of roles and responsibilities may improve the quality of smaller GPs.

Another side point was that it had created a barrier to entry in the EU and notably in certain states that had chosen to gold plate the AIFMD. As such and for example GPs in France would have a more secluded access to French LPs, and should seek to benefit from that if they could.

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