MyOfficialStory, March 2014
Playing the AIFM music in the right tone: the role of professional associations
The European Commission came up this year with a special Christmas gift: the so long awaited Level 2 implementing measures for the AIFM Directive; as a cherry on the cake, the ESMA released that very same day two consultation papers on the types of AIFMs and on the key concepts used in the Directive.
L2 released with important clarifications for PE
What the reform is really about
The L2 implementing measures brings clarifications on the following important topics for PE: how to calculate assets under management to benefit from the de minimis exemption threshold; how to treat exposure that exists at the level of any financial or legal structures involving third parties controlled by the AIF and how to deal with temporary borrowing arrangements (such as bridge financing); operating conditions and in particular due diligence requirements when investing in target companies, risk management, or transparency (with a reporting to regulator required only annually for PE under conditions).
However, a real margin for interpretation remains on key topics
However, on other topics, such as delegation, the text leaves significant room for interpretation. As it stands now, the Article 82 on the Letter Box entity does not fully clarify to what extent an AIFM may delegate portfolio and/or risk management without being deemed a letter box. Art 82 mainly contributes to the debate a set of qualitative criteria which regulators are required to take into account so as to avoid assessing the ‘substance’ of the delegated activities as compared to those retained by the AIFM on a quantitative basis only.
Which reminds us of the key role of professional associations
The engagement of a professional association such as LPEA is key to represent our industry and advocate for a pragmatic interpretation. Let’s be clear, the idea is by no way to circumvent the AIFM Directive and in particular its substancestrengthening approach. The idea is to help regulators to come up with a workable interpretation, meaning an approach creating value and growth. In doing so, Private Equity professional associations, first of course the EVCA but also national associations such as LPEA are fully supporting the EU Commission’s agenda to create growth into Europe.
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