Politically-led taming reeks of hypocrisy
By Paul Mackintosh - 07/01/13
In the midst of its struggles for survival and viability, let alone credibility, the European Union (EU) did manage one important move for the private equity (PE) industry just before Christmas. The long-awaited Alternative Investment Fund Managers Directive (AIFMD), governing operation and marketing of hedge funds and PE vehicles in the EU, finally was given definitive form as the European Commission adopted actual technical rules on implementation, which will now be put to the European Parliament and the Council of the European Union for consultation, but which then may be implemented as early as end Q1 2013.
While still objecting to certain components of the AIFMD, PE industry organisations broadly welcomed the clarity and an end to the consultation and lobbying process, and have recommended early and seamless implementation. “The Acts are an important step towards giving European private equity fund managers and their investors legal certainty,” declared European Private Equity and Venture Capital Association (EVCA) Secretary-General Dörte Höppner. “It is now vital that the AIFMD is implemented consistently across the member states without any gold-plating to ensure a level playing field.” And indeed, the AIFMD moves regulation of the industry up to the pan-European level, in the shape of the European Securities and Markets Authority (ESMA) and the European Systemic Risks Board (ESRB), and delivers in principle on the promise of a single fund passport across the entire EU.
Reservations remain, however, about the principles behind the legislation, although the industry has tackled these for long enough now to have blunted the worst of them. Supervision of alternative funds by the ESRB still implies that PE and hedge funds could pose a systemic risk to the European economy. In fact, there is no evidence of this. Furthermore, the AIFMD includes provisions against ‘asset stripping’ of target investees. And yes, distressed investment funds do exist that specialise in stripping defunct companies – but that is one narrow niche of an industry that by and large focuses on growing its investees. Special provisions about this Darwinian, but perhaps necessary, practice smack of politically-led populism. Above all, is the AIFMD the right place for such regulations, as opposed, for instance, to national-level legislation on industry policy?
The AIFMD still gives off a whiff – much less so than before, but detectable – of regulatory grandstanding, a politically-led bid to “tame” the alternative fund management industry. Unfortunately, as the recent events in Europe have shown all too well, it is Europe’s politicians and institutions that need taming, not its alternative funds. The EU needed no help from private equity or hedge funds to plunge itself headlong into a crisis, and alternative funds are one of the few capital resources that might help alleviate the situation. A pity to see them still being castigated for their accusers’ crimes.