BVCA: Leave private equity out of the directive

Simon Walker, chief executive of the British Private Equity and Venture Capital Association (BVCA), this morning called for private equity to be excluded from the European Union’s proposed directive on alternative investment fund managers.

“The truly sensible way forward,” said Walker, “would be for private equity to be removed from the scope of this directive, if indeed a directive of any form is merited, and considered or not on its own qualities once the recession and the recovery have been dealt with.”

Walker was giving evidence to the UK’s House of Lords’ EU committee on economic and financial affairs alongside representatives from the hedge fund industry.

Such an argument from the BVCA is unlikely to gain traction, according to lawyers.  Adam Levin, a London-based partner at law firm Dechert, told PEO that while Walker makes some good points, to suggest private equity should be exempted from the directive until “the recession and the recovery have been dealt with” is unrealistic.

“This seems to smack of wishful thinking in trying to put off the ‘evil day’ hoping that the day will never come, whilst at the same time pouring cold water on all the great work already undertaken by the private equity industry in making its case for the role it already plays,” he said. “Perhaps it is time to confront the issues instead.”

Another London-based lawyer, who asked not be named, said an exemption for private equity alone would be unjust.

“There are many features of private equity that mean it should be exempt from the directive,” he added,

“But these features are present in many other fund asset classes, such as infrastructure, distressed debt and real estate, so it would be unfortunate for an exemption to focus specifically on private equity”.

When Sweden took up its six-month leadership of the European Union on Thursday, it gave private equity firms reason for some optimism, by expressing support for the asset class. “There is an exaggerated fear that private equity contains big systemic risk,” said finance minister Mats Odell. “Our opinion is that it does not.”

Sweden is understood to want to get the directive ratified during its tenure, before the presidency and the associated power to redraft the directive is passed to Spain in January.

In related news, Lord Myners, the UK financial services secretary to the treasury, said the directive needed “major surgery” before being deliverable and called for institutional investors to make their voices heard on the subject. “If institutional investors can make clear which regulatory safeguards they want to see applied to their fund managers and which they find to be costly and unnecessary, this will send a powerful message to policymakers,” he said at a press conference this morning.