26 Nov 2021
Ten years ago, the private equity industry was for the first faced with a uniformed set of laws being applied across Europe: the Alternative Investment Fund Managers Directive (known colloquially as “AIFMD” for those who have since get to know it a bit too well). Since then, AIFMD has become, for better (a European passport) and for worse (authorisation and reporting requirements), part of the life of many European fund managers.
Over the years, the regulatory framework has caused issues for fund managers on a daily, monthly or yearly basis, leading to a legion of guidelines and regulatory standards by the authorities and a matching number of guides on understanding and complying from us at Invest Europe.
Yet, for all the desire in the industry to return to simpler – and easier – pre-AIFMD times, no policymakers in Europe seriously considered going back. And, as all sectors of the financial services industry became slowly but surely subject to more intense scrutiny, the hope to get a better regime faded into the fear of facing a – much – worse one.
After all, a lot was at risk for the industry: the carve-out for smaller, “sub-threshold” fund managers; the rules on leverage and on asset stripping; the treatment of carried interest and the extent to which cross-border activities are allowed - all of this had the potential to be reviewed… and worsened.
We did however over the years gain one key ally in pushing back against radical changes: the AIFMD framework itself – because it was actually working. Of course, the Directive offered a solid “brand” particularly for investors from outside the EU, but it also, for all its flaws, gave comfort to policymakers that our industry was operating under legitimate conditions and with legitimate objectives. As a kid sleeping with the lights on, AIFMD simply allowed regulators to find out there were no monsters under the bed.
|Since the AIFMD was first published, Invest Europe:
Year after year, through the sovereign debt crisis, through Brexit and with the climate agenda, the regime framed our industry in the role it must belong: as a global bridge between savers and investors, on the one hand, and projects and businesses, on the other.
The recognition by EU policymakers of such a role culminated in the Capital Markets Union (“CMU”) project, an initiative designed to foster the development of capital markets in Europe – and which led to a review of the EuVECA regime and to a harmonisation of the cross-border distribution of AIFs. And it is telling that the “official” review of the AIFMD framework has been introduced this Thursday as part of the CMU 2.0 project. Not as a way to “tame” the industry, but as a way to allow it to finance the economy.
The review presented this week by the Commission shows that 95% of the AIFMD rules have been deemed fit for purpose. This is a testimony of the trust in our industry, and that the understanding of it by policymakers, a decade after which it had been demonised, has never been greater.
Where changes have been introduced – on delegation and on some aspects of reporting - this was done in recognition of the benefits of cross-border channels and noticing the importance of respecting industry practices. No small feat in the current frosty attitudes to globalisation across the continent and at the time where UK and EU relationships are, at best, sour.
The review of ELTIF – the long-term voluntary passport and AIFMD second “little sister” - is another proof of the commitment to allow fund managers to play their role as long-term investors in the EU economy. The proposal as it stands now is a clearly improved framework, easier to use for the industry and taking into consideration some of its key characteristics.
Nothing is to be taken for granted though. This week’s reviews open - rather than close - policy debates. Expect EU policymakers, in Member States and in the European Parliament, to consider further changes to delegation or the integration of new requirements. But we can find some confidence for the work ahead in the fact that, at a time of the fundamental review, the venture capital and private equity industry is right where it needs to be.
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