Some fund managers are passing up European investment opportunities in a bid to steer clear of the Alternative Investment Fund Managers Directive (AIFMD), according to a panel of experts at the Guernsey Funds Forum 2015.
The event was held in London last week and attracted more than 500 attendees to listen to keynote speaker Guy Hands and two panel sessions. The first of those was titled ‘meeting the needs of European private equity’, including a focus on Base Erosion and Profit Shifting (BEPS) and the Alternative Investment Fund Managers Directive (AIFMD).
Tim Hames, director general of the British Private Equity and Venture Capital Association (BVCA), said that BEPS provided a challenge to the future success of private equity in Europe.
“If we create a world, whether by accident or design, via the OECD BEPS process, in which it becomes so gruesome in terms of tax treatment for investors to get involved in European private equity, then they are not going to do so, even if the returns are alpha, alpha, alpha,” he said.
He added that this would be particularly so because it would be adding to the demands already being exacted on the industry by AIFMD, where there was one question which should be asked.
“Will this action make Europe a less or more attractive place to outside investors and observers?…If that is the simple test for the AIFMD process, then the honest answer is that there are people giving Europe a pass now, who would not have given Europe a pass previously. Because whilst there is no particular individual provision that is a deal breaker, the collective weight, the sheer hassle, and the fact that there are other parts of the world that are not bothering you with this sort of thing, are a very powerful set of arguments,” said Mr Hames.
Karen Sands, head of Finance at Hermes GPE, said: “We early adopted for AIFMD and became an authorised AIF [Alternative Investment Fund] firm on the 1st July 2014. We have found that AIFMD has layered the ordinary process, whether it be from an investment or investor perspective, with a whole heap of tasks to make sure you are compliant with AIFMD…So it’s quite cumbersome.
“I think delivering European private equity with co-mingled vehicles becomes even more complex, particularly if you are marketing to investors outside of Europe. They are put off by AIFMD and certainly some of the discussions that we’ve had have been around single investor funds.”
James Gee from Weil said that AIFMD had probably proved more onerous for those onshore rather than third countries such as Guernsey, which was able to offer access to the EU through national private placement regimes.
Robert Mellor, Tax Partner at PwC, said that Guernsey’s advantage was in having a dual regulatory regime – one which is AIFMD compliant and another which is free from the requirements of AIFMD – and the Island therefore provides flexibility and options.