Falling on deaf ears
In what it must hope will be seen as a carefully considered and constructed response to the European Commission’s hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association — the voice for private equity in Europe — calls for the threshold for reporting on its companies’ activities to be lifted to 1 billion euros assets under management from 500 million.
It argues that private equity firms smaller than that specialise in managing small and medium-sized companies and should be subject to national legislation.
EVCA also wants a grandfathering clause introduced so firms existing funds that use no leverage and have no redemption rights (the vast majority of all unlisted private equity funds) would be exempt from the directive. It argues that failing to do this could result in termination of these funds “with disastrous consequences for the industry and its portfolio companies”.
The big question is who in Europe is listening?
Having already gained a surprise concession in the published draft, which lifted the reporting threshold to 500 million euros from an expected level of 250 million euros, private equity may be seen as pushing its luck by asking for further leeway.
While the Socialists lost ground to the Conservative right in the recent European Parliament elections, it would be a mistake to think that the left wing coalition leader Poul Nyrup Rasmussen will be any less strident in his call for stringent legislation on private equity and hedge funds alike. The right wing Governments in France and Germany have been just as loud in their demands for legislating of the industries.
Private equity might have been hoping for support from the UK, home to most of Europe’s largest funds, but the decision of the British Conservative party to step outside of the main right wing coalition in Europe will weaken the voice in its favour. A feeble British Labour Government and a UK Treasury with bigger fish to fry does not leave private equity with many influential friends.
EVCA’s response to the proposed directive is its opening shot in the whole legislative process which is likely to take at least one year, but it must have hoped for a warmer reception for its counter-proposals.