Spain postpones EU directive talks on UK pressure

A crucial meeting of European finance ministers that could have paved the way for passage of strict EU regulations on private equity and real estate fund managers was taken off the agenda on Tuesday, reportedly following an intervention by UK Prime Minister Gordon Brown.

Members of the EU Economic and Financial Affairs Council were expected to iron out their differences over the Directive on Alternative Investment Fund Managers, before sending it to the European Parliament for a vote.

If passed in its current form, the directive would impose new disclosure requirements and compliance costs on fund managers based in the EU. Differences remain among European member states over issues such as who can act as depositories and whether firms with less than €100 million in assets can be excluded from the requirements.

What’s happened today has taken us all a bit by surprise, but we have always said that there would be no sense in rushing to premature conclusions and that more work needed to be done, and this seems to have been recognised by the finance ministers. Alan Murray, British Venture Capital Association

Such issues were scheduled for debate on Tuesday before Spain, which currently holds the EU presidency, took the discussion off the table. Spain said the rules needed more work and the directive would be back on the agenda at some point before the country’s rotating six-month term ends in June. 

“What’s happened today has taken us all a bit by surprise, but we have always said that there would be no sense in rushing to premature conclusions and that more work needed to be done, and this seems to have been recognised by the finance ministers,” said Alan Murray, head of communications and public affairs for the British Venture Capital Association (BVCA).

However, Dechert partner Gus Black points to recent media reports showing the edge in support between the pro- and anti-directive forces being so narrow that even a small country could have swung the vote.

“I imagine that there was thought to be a blocking minority which would have prevented the vote from being passed, which is why it’s been deferred,” he said. “I don’t buy that line about they ‘needed to get maximum support’, I think for that you read ‘needs to get the vote passed’. They were worried that the vote would not pass, so they pulled it from the agenda.”

Although speculation about what caused the delay has also included the economic problems in Greece and the upcoming UK general election, expected on 6 May, the Financial Times also reported that Brown called Spanish Prime Minister Jose Luis Rodriguez Zapatero the night before the scheduled meeting and said Britain could not accept the compromise plans on the table.

They were worried that the vote would not pass, so they pulled it from the agenda. Gus Black, Dechert

The UK, home to 60 percent of Europe’s private equity firms, has been a staunch opponent of the directive in its current form, especially the “third country” rules that would prohibit foreign fund managers from marketing within the EU unless they have an equivalent regulatory regime. UK officials have said that such rules would create a barrier to investment by major EU trading partners such as the US, Russia, China and India.

France and Germany have led the bloc seeking to keep such restrictions in place, but the delay by Spain to obtain more support may indicate that recent lobbying by the US and groups like the BVCA and European Private Equity and Venture Capital Association (EVCA) is making an impact. It was revealed last week that US Treasury Secretary Timothy Geithner wrote to the European Internal Market Commissioner to express concerns that US firms would be discriminated against by the directive. 

The EVCA on Monday also released a study showing that 67 percent of institutional investors surveyed said they would reduce or completely halt their allocations to European growth or venture funds if the current version of the directive passes. “We continue to be fully engaged in the process ahead in order to preserve the core objectives of the directive while maintaining the flow of capital that is so vital to the financing of economic recovery,” said Javier Echarri, EVCA secretary general.

Attention now shifts to the European Parliament, with an ECON committee debate on the directive going ahead for 17 March.

“Parliament is debating the directive as scheduled tomorrow, and no doubt some further views on Parliament’s position will emerge from that, and we are probably now in a position where the Parliament, the Council of Ministers and the European Commission will progressively be working together to try and arrive at a compromise,” Murray said. “And as part of that process ourselves and the other national associations will be wanting to input our views to that.”