European Private Equity Blog

Welcome to our European Private Equity Blog.

We update this page with regular pieces discussing the latest trends and issues in the private funds market across Europe. The authors come from our team in Europe, as well as from our other offices, with occasional guest posts from our friends within the private equity community.

If you’d like to receive monthly round-ups of new posts on the blog, you can sign up here.

If you have any questions concerning anything covered in the blog, please do get in touch with the team.

EU Raises the Bar for Third-Country Access

12 April 2019

Jin-Hyuk Jang, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney, John Young

This week saw another Brexit deadline come and go: the UK will not crash out of the European Union this evening, having been granted a further extension to its original two-year notice period. All sides hope that this extra time will enable a “no-deal” outcome to be avoided, but private fund managers are still unable to rule that out. Indeed, they must now pencil in 31 October 2019 as the next possible date for a disorderly (transition-free) Brexit – although the UK could choose to leave with a deal earlier than that, or could even be forced out without a deal on 1 June if the UK fails to participate in May’s European elections.

Meanwhile, the EU continues to quietly prepare for the day when the UK becomes a “third-country” (EU-speak for “not one of us”) – whether that is following a hard Brexit later this year, or at the end of any transitional period that is agreed as part of a negotiated Withdrawal Agreement. Of course, if observers of the Brexit process have learned anything during the last few years, it is that things can change: we are certainly not in a process that is linear and predictable. The UK may not end up leaving the EU at all, or it might agree to remain aligned with the single-market rulebook in exchange for full market access. But it currently looks most likely that – so far as financial services is concerned – the UK is on course to rely on the EU’s partial and unsatisfactory “equivalence” rules to establish the terms of its access to EU-based investors. That is the path the UK government opted for in the non-binding Political Declaration that accompanies the draft Withdrawal Agreement, and it has been the working assumption of law-makers and regulators that this will indeed be the ultimate outcome. Not surprisingly, that assumption has had an effect on the regulations relating to third-country access that have been in process.

No-Deal Brexit This Week? Some EU Transitional Regimes for MiFID Firms May Require Immediate Action

8 April 2019

Patricia Volhard, Simon Witney, Jin-Hyuk Jang, John Young, Gabriel Cooper-Winnick, Clarisse Hannotin, Eric Olmesdahl, Philip Orange, Johanna Waber

As we have reported before, a number of European Union countries have established temporary relief for UK-based firms providing investment services under the MiFID passport. Firms benefitting from this transitional relief will be able to ensure some degree of continuity for their operations after a hard Brexit (i.e., one with no transitional period), which – although unlikely—could come as early as this Friday (12 April). In some countries, urgent action is needed if a firm wants to rely on the local transitional regime.

Unfortunately, there is no harmonised temporary regime in Europe, and any UK-based firm currently using a MiFID passport (which includes many private equity “adviser/arrangers”) should look at the different regimes in each EU member state where it currently provides investment services.

Invest Europe Updates Its ESG Due Diligence Guide

5 April 2019

Katherine Ashton, David Innes, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney

Companies face a pincer movement when it comes to “responsible investment”: there is increasing pressure from all sides, including from regulators and investors, to ensure that environmental, social and governance (ESG) issues are addressed by any business of significant scale. As enlightened, active owners – with a keen interest both in maximising returns and keeping their key stakeholders happy – private equity fund managers have responded very positively to the shifting landscape. Most have ESG policies, and have become used to answering investor questions on the subject. Many others have signed up to the UN PRI, whose six principles help to inform a firm’s investment decisions and the ways in which it exercises ownership rights.

But one problem for firms is deciding which ESG issues to focus on, and when and how they can be addressed. The range of issues that falls within the category of “responsible investment” has rapidly increased in recent years, and many of these could have a very material effect on exit value and saleability. Data security, for example, has jumped up the list of material risks that many companies face, and is now often regarded as an ESG issue. Similarly, as societal expectations have changed regarding supply chain due diligence, many businesses have re-doubled their efforts to ensure their products are ethically sourced. And while environmental considerations have always been important, the growing expectation that carbon emissions will be subject to significantly increased taxes has elevated this issue in energy-intensive industries.

But firms cannot focus on everything, so identifying the most important ESG risks, and deciding in which order to tackle them, is critical.

European Commission Gives European Insurance Companies More Reasons to Invest in European Funds

29 March 2019

Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Jin-Hyuk Jang, Clare Swirski, Simon Witney

Earlier this month, the European Commission announced a change to the capital weightings that will apply to EU-regulated insurers holding long-term investments in European companies – including holdings in certain European private equity and venture capital funds. This is a very welcome step, and an important victory for the European private equity industry associations after a lengthy campaign. The change should herald a boost to private equity and venture capital funding.

By proposing to amend the Solvency II rules, which have provided the prudential and supervisory framework for EU-regulated insurers since 2016, the Commission has accepted that a risk weighting of 22% is more aligned with the risk profile of longer-term equity investments. That is significantly lower than the 39% that has applied to many European private equity and venture capital funds in the past, and the 49% weighting that can apply to other holdings in private equity by default. The hope is that insurers – who traditionally contribute less to private equity funds than pension funds and other long-term asset managers – will recognise that an allocation to diversified portfolios of equity holdings is an attractive way for them to deliver returns, whilst matching their liquidity requirements.

Guest article by Gurpreet Manku, Deputy Director General and Director of Policy at the BVCA

27 March, 2019

Guest article by Gurpreet Manku, Deputy Director General and Director of Policy at the BVCA

Building Trust in UK Business

If you are looking for, or really need, a breather from Brexit you have come to the right place. Whilst the Brexit process and political situation has taken up a huge amount of bandwidth in Whitehall, the UK government department responsible for business (BEIS - Department for Business, Energy and Industrial Strategy) has been working on other areas that affect UK companies and M&A. I have been referring to this recently as the Building Trust in Business agenda and this is not aimed at the private equity industry, but the business community more broadly in the United Kingdom.

Highest European Court Holds Parent Companies Liable for Cartel Damages of Subsidiaries

22 March 2019

Timothy McIver, Anne-Mette Heemsoth, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney

In an important ruling last week, the European Court of Justice (the ECJ) – the EU’s highest court – held that a parent company’s liability for damages in a civil follow-on action follows the same path as liability for antitrust fines. The Court’s judgement on this previously unresolved question has wide-ranging consequences for private equity fund managers and their investors, who may find themselves unexpectedly responsible for a breach of European competition law.

How to Make Private Equity (Somewhat) More Scalable

15 March, 2019

Guest article by Ross Butler, CEO of Linear B Media and founder of Fund Shack

  • At the World Economic Forum 13 years ago, the then head of Apax Partners, Martin Halusa, predicted the emergence of $100bn private equity funds. Since then, the aggregate amount of capital raised by private equity managers has ballooned, but the median fund size is barely above $500m. Most mega buyout funds are comfortably below $20bn despite more than a decade of ultra-low interest rates and benign economic growth.
  • This shouldn’t be so surprising, since private equity investing is not particularly scalable. This is as true for fund managers as for fund investors.

Significant Progress on Harmonisation of EU Fund Marketing Rules – But Will There be a Cost For Non-EU Managers?

15 March 2019

Clarisse Hannotin, Jin-Hyuk Jang, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney

Although the Alternative Investment Funds Managers Directive (AIFMD) offered an EU-wide passport to authorised firms operating within the bloc, operation of that passport to market funds seamlessly has proved to be more troublesome that it should have. One of the main issues, frequently raised with European regulators, has been the different definitions of “marketing” adopted by national law in each member state. That definition circumscribes what level of market-testing and investor discussion – so-called “pre-marketing” – can take place before an application for the marketing passport is made. In some countries, near-final draft documents can be sent to prospective investors without engaging the definition of marketing; in others, even general discussions about a proposed fund cannot be undertaken without first having acquired the passport. That is obviously problematic for an EU manager planning their marketing strategy – but may also have wider consequences for non-EU managers seeking to approach the European market. For further information, please click here.

After years of deliberation, the European legislators are now very close to publishing agreed rules that would harmonise the meaning of marketing throughout the EU (actually, the EEA: the EU plus Norway, Iceland, and Liechtenstein). The proposals, first published by the European Commission in March 2018, have now been agreed at a political level and could take effect in 2021. On the face of it, the revised text (repeated in a Regulation that will apply to venture funds within the EuVECA regime) looks helpful and – thanks to the unstinting efforts of our industry associations – represents a significant improvement on the original Commission proposal.

How Can Private Funds Attract More Capital from UK Pension Funds?

8 March 2019

Katherine Ashton, Geoffrey Kittredge, John W. Rife III, Clare Swirski, Patricia Volhard, Simon Witney, John Young

For good reason, pension funds are highly regulated and decision-makers are understandably cautious. Beneficiaries, most of whom are not themselves sophisticated investors, have to know that their savings are invested prudently and in accordance with their liquidity needs. However, it is crucial to get this regulation right, because an overly conservative approach could depress returns, concentrate risk and make it harder for socially valuable long-term investment projects to get funding.

This is especially relevant in the United Kingdom now. The market is rapidly moving away from “defined benefit” schemes, where an employer and its pension fund trustees effectively assume responsibility for paying out pensioners a pre-agreed sum, and towards “defined contribution” (DC) schemes. In DC schemes responsibility shifts to the beneficiaries – and those who manage money on their behalf – to ensure that expectations can be met in retirement. There are a number of reasons why private fund managers (and other illiquid asset classes) have found it hard to access this growing pool of capital in the past, but regulation is certainly one of them. Now there are laudable efforts to change that, given extra impetus by the Patient Capital Review, published by the UK Treasury in 2017 and led by Sir Damon Buffini.

Why Private Equity Sponsors Matter in Insurance

6 March 2019

Jonathan Adler, Mark S. Boyagi, Daniel Priest, Alexander R. Cochran, Kristen A. Matthews, Rebecca J. Sayles

Private equity sponsors are playing an increasingly important role as managers of insurance company assets, which has implications for both the insurance M&A market and the private equity fund investment space. Read why in this article.

GDPR and Data Breach News: Are you Ready?

5 March 2019

Luke Dembosky, Jeremy Feigelson, Antoine F. Kirry, Jim Pastore, Dr. Thomas Schürrle, Jane Shvets, Alexandre Bisch, Ceri Chave, Christopher Garrett, Fanny Gauthier, Robert Maddox, Dr. Friedrich Popp

As data security breaches make headlines, companies must take the associated legal challenges seriously. Recent enforcement actions by some EU data protection agencies are reminders that non-compliance with data breach obligations and other GDPR requirements may expose companies to heavy fines. Here is a refresher of the main topics that GDPR-compliant breach response plans should cover.

What Public Company Boards Can Learn from Private Equity

1 March 2019

Katherine Ashton, Geoffrey Kittredge, John W. Rife III, Jeffrey J. Rosen, Patricia Volhard, Simon Witney

Many argue that at least part of the reason for private equity’s sustained success is its approach to portfolio company governance. Industry insiders (and some academics) point to the sector’s superior decision-making structures, and the aligned incentives of the main protagonists, as driving value creation in private equity-backed companies. But the question has always been: why don’t other companies – especially public companies – capture the same benefits by emulating those structures?

A recent academic paper suggests why that has been difficult in the past, but explains how a new approach could help larger companies to satisfy their widely dispersed and increasingly institutional and engaged shareholders, and to make more informed operational and strategic decisions.

No-deal Brexit: The EU’s Patchwork Approach to Transitional Provisions

22 February 2019

Jin-Hyuk JangGeoffrey KittredgeJohn W. Rife IIIPatricia VolhardJohanna WaberSimon Witney

As the scheduled date for the UK’s departure from the EU draws nearer – and just as speculation increases that the UK will not actually leave at the end of March, but will instead ask for its leaving date to be deferred – some European legislators have started to think about how to minimise the disruption that would ensue if the UK did leave suddenly, without having agreed a deal, in just over one month’s time.

The UK has been working on its own transitional regime for financial services for some time, and EU firms are now able to notify the regulator, the Financial Conduct Authority (FCA), that they intend to make use of it. But regulators and policy-makers elsewhere in the EU have been reluctant to follow suit. At last there are signs that this is changing, but the approach differs from country to country, meaning that UK investment firms who want to make use of any transitional relief (only necessary if there is a “no-deal” Brexit) will have to navigate a patchwork of different regimes – most of which will require a notification to be given to the relevant regulator before Brexit.

Dissecting ESG: Ethics and Profitability

22 February, 2019

Guest article by Rosie Guest, Global Marketing Director at Apex Fund Services

There are a wide spectrum of ethically focused investment strategies around, various ways of referring to them and a lot of acronyms. Divesting, ESG, Negative Screening, Shareholder Activism, Shareholder Engagement, Positive Investing, Impact Investing, SRI, Ethical Investing, Faith based Investing, Norms-based Investing, Values-based Investing, Thematic investing, Philanthropic investing…the list goes on. Environmental, Social and Governance (ESG) – the three core factors for measuring the sustainability, responsibility and ethical impact of an investment. To understand the importance of the ESG strategy, where it sits on the spectrum and the reasons for its rise to the top of the strategy popularity contest, we must first differentiate it from other similar types of ‘ethical’ investment strategy.

This is a guest blog from Apex Fund Services, and is a shortened version of an original article on the Apex blog, available here

The UK’s New Senior Managers and Certification Regime

15 February 2019

Geoffrey Kittredge, Philip Orange, John W. Rife III, Patricia Volhard, Simon Witney, John Young

Any private equity firm with a regulated presence in the UK will be familiar with the UK regulator’s “Approved Persons” rules. These rules are supposed to ensure that regulated firms only employ people in senior roles who have the necessary attributes for their job, with those senior personnel approved by the Financial Conduct Authority (FCA) and listed on its public register. But, in December this year, that system is radically changing. The Senior Managers and Certification Regime will soon apply to most asset managers – and many firms are now trying to understand how big that change will be.

Responsible Investment: An Opportunity for Private Equity

8 February 2019

Matthew Dickman, Delphine Jaugey, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney

European private equity fund managers are well aware that demonstrating a commitment to responsible investment is becoming an essential component of a smooth and successful fundraising. Regulation is only one of the drivers for that change, but it is an increasingly significant one, and two recent developments are characteristic of the changing regulatory landscape. They also highlight an opportunity for private equity fund managers – many of whom are already focused on ESG (“environmental, social and governance”) considerations when making and managing portfolio investments.

FCA and ESMA announce agreement of co-operation arrangements in the event of a Hard Brexit

4 February 2019

By Jin-Hyuk Jang, Patricia Volhard, Simon Witney, and John Young

Last week, the FCA (the UK’s regulator) and ESMA (the pan-European supervisor) announced that a multilateral Memorandum of Understanding (MoU) has been agreed to facilitate exchange of information between regulators in the event of a hard Brexit. This is excellent news for firms that have been making contingency plans for a hard Brexit at the end of March – an outcome that remains very much on the table. However, firms must wait for publication of the MoU before being able to confirm its scope. For a private fund manager, there are three main circumstances in which this MoU may be crucial.

Annual Reporting By Large UK Private Equity-Backed Companies

1 February 2019

Katherine Ashton, David Innes, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney

The Walker Guidelines – standards for disclosure and transparency in the private equity sector set by Sir David Walker in 2007 – are now an established part of the UK’s landscape. These guidelines apply to the largest UK portfolio companies and their private equity owners, and (among other things) require affected companies to prepare annual and mid-year reports that (broadly) meet the same standards as their publicly listed counterparts. The Guidelines were initially developed in response to concerns expressed by politicians and the media that private equity-backed companies were less transparent than their public equivalents, and that their private equity owners were deliberately secretive. The Guidelines have gone a long way towards addressing that concern, especially since compliance is comprehensively reviewed on an annual basis by the Private Equity Reporting Group – a body that consists of a majority of independent members and which is currently chaired by Nick Land, former Chairman of Ernst & Young. This year’s annual report was published at the end of last year and makes for interesting reading, especially when read alongside the accompanying Good Practice Guide.

UK Financial Conduct Authority Puts Heads of Legal Outside the Senior Managers Regime

1 February 2019

Karolos Seeger, Andrew Lee

In a long-awaited but widely-expected development, the UK Financial Conduct Authority (“FCA”) has issued a new consultation paper proposing that Heads of Legal do not need to be designated as Senior Managers under the Senior Managers Regime (“SMR”). Ever since the introduction of SMR in 2016, the FCA has delayed formally confirming whether heads of legal should be allocated the SMF18 role (Other Overall Responsibility Function).

The FCA came to its position in light of the potential difficulties created by legal professional privilege. A fundamental principle of the SMR is that if a firm breaches a FCA requirement, the Senior Manager responsible for that area can be held accountable if they did not take reasonable steps to prevent the breach from occurring (the so-called ‘Duty of Responsibility’). This could lead to a conflict of interest in which a Head of Legal wishes the firm to waive privilege to help him or her avoid personal liability, while being professionally obliged to advise the firm not to waive privilege where this is not otherwise beneficial for the firm.

New Luxembourg Beneficial Ownership Register to go Live

29 January 2019

Guest article by Michael Jonas, Counsel with Arendt & Medernach

The Luxembourg law of 13 January 2019 on the register of beneficial owners was recently published and will come into force on 1 March 2019. The register applies to Luxembourg investment funds as well as companies. The law creates a central register of beneficial owners of companies and other entities to implement the last element of the fourth EU Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing into Luxembourg law, as amended by the AML 5 Directive.

Assessing the Alternative Investment Fund Managers Directive

25 January 2019

Jin-Hyuk Jang, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney, John Young

The AIFMD doesn’t have many fans in the private equity community. Often portrayed as a knee-jerk response to the financial crisis, it imposed strict pan-European rules on private equity fund managers (along with the managers of hedge and other private funds), and its regulatory objectives were not always easy to discern. Now, because the AIFMD included provisions for its own review, policy-makers have the chance to review how it is operating in practice, and decide whether changes should be made. The scope and scale of the review is largely unknown, although relatively limited changes seem more likely than a rewrite.

The Directive itself required the European Commission to start its review by July 2017, but the first sign of concrete output came this month, when a report commissioned from KPMG was published. Although the report does not reflect the Commission’s own views, it is likely to influence its deliberations – especially since it includes a survey of 478 market participants drawn from 15 member states and additional data provided by national regulators, fund managers and industry bodies.

Investment Limited Partnership Reform in Ireland

22 January 2019

Guest article Ian Conlon and Jennifer Murphy, from the Dublin office of Maples & Calder

Limited partnership law in Ireland is to undertake significant reform in 2019. The Irish Government recently approved the drafting of the amendment to the Irish investment limited partnership legislation and it is understood that the Investment Limited Partnerships (Amendment) Bill 2018 will be published shortly. This is the boost that the Irish funds industry has been looking for in its efforts to establish Ireland as a European domicile for private equity funds.

New UK Corporate Governance Disclosures for Private Companies

18 January 2019

Sarah Hale, David Innes, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney

In the past, the UK has generally adopted a “hands-off” approach to corporate governance in private companies. It is true that there are some mandatory directors’ duties baked into company law, but these set fairly weak standards and are hard for outsiders to enforce. The rationale, of course, is that corporate governance is largely a matter for the managers and the shareholders to agree and – while in public companies, shareholders may need assistance from regulators to strike an acceptable bargain – investors in private companies can be expected to look after themselves. But that logic is increasingly less convincing to governments around the world, who regard good governance as playing a part in protecting stakeholders and society more broadly. The UK government apparently agrees and, from the beginning of this year, many UK-based private companies will have to get to grips with new disclosure obligations.

Unpicking the Brexit Chaos: What Next?

16 January 2019

Guest article by Tim Hames, Director General of BVCA

The irony of the idea of introducing electronic voting in to the House of Commons is that it would make voting there less electric. The sheer theatre of what occurred last night was spectacular. The scale of the Government’s defeat, at the extreme end of expectations, was stunning. The joust that followed between Theresa May and Jeremy Corbyn was captivating. If Brexit were merely a drama or a fiction, it would be exceptional entertainment. In the real world, however, it is deadly serious. What next? Here are five observations which might prove of some value.

FCA Opens Notification Window for Temporary Permissions Regime for EEA Firms

15 January 2019

Patricia Volhard, Simon Witney, Jin-Hyuk Jang, John Young, Philip Orange, Gabriel Cooper-Winnick, Johanna Waber, Eric Olmesdahl

As part of its preparations for a potential “no-deal” Brexit, the UK’s Financial Conduct Authority has established a temporary permissions regime for non-UK firms using their home state “passport” to market funds domiciled in the EEA in the United Kingdom, provide services on a “cross-border” basis into the United Kingdom or operate a UK branch. The FCA has now announced the opening of the notification window for EEA firms and fund managers wishing to enter the temporary permissions regime.

Regulatory Developments To Watch Out For In 2019

11 January 2019

Jin-Hyuk Jang, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney, John Young

Legal and compliance teams at European private equity and venture capital firms might have been relieved to see the end of 2018 – with GDPR and MiFID II implementation projects largely completed – but 2019 seems unlikely to be a quiet year. So, what is on the regulatory “to-do list” for the next 12 months?

Invest Europe: What Does 2019 Hold for Private Equity?

9 January 2019

Guest article by Michael Collins, CEO of Invest Europe

Michael Collins, CEO of Invest Europe, explores what 2019 will hold for private equity and venture capital firms in Europe. Among other topics, he discusses the impact of Brexit, the European Parliament elections, and the moves towards AIMFD II.

SEC Enforcement Against Private Equity Advisers Continues

18 December 2018

Jonathan Adler, Andrew J. Ceresney, Julie M. Riewe, Jonathan R. Tuttle, Norma Angelica Freeland, Kenneth J. Berman, Robert B. Kaplan, Rebecca F. Silberstein, Gregory T. Larkin

On December 13, 2018, the U.S. Securities and Exchange Commission announced a settled enforcement action against private equity adviser Yucaipa Master Manager for alleged negligent failure to disclose conflicts of interest and misallocation of fees and expenses to the funds it advised. The action originated from concerns raised by staff from the Office of Compliance Inspections and Examinations. Yucaipa paid nearly $3 million to resolve the case.

UK Limited Partnership Law Reform

14 December 2018

Geoffrey Kittredge, Philip Orange , John W. Rife III, Patricia Volhard, Simon Witney, John Young

This week saw some welcome news for users of UK limited partnerships, although unfortunately the industry’s relief has to remain somewhat qualified. A long-awaited announcement of the outcome of a consultation on changes to limited partnership law has side-stepped the most damaging of the original proposals, but still leaves a number of unanswered questions.

Reporting Emissions in the UK: Further Disclosures Coming

7 December 2018

Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Wendy J. Miles, Nicola Swan, Simon Witney

Many in the private equity sector will be familiar with the UK’s complex and burdensome CRC scheme. Introduced in 2010 as the Carbon Reduction Commitment (later amended and renamed CRC Energy Efficiency Scheme), CRC comprised both a tax and a reporting requirement. It was particularly problematic for any private equity fund with investments in the UK because of its expansive grouping rules, and there was considerable relief when its abolition was announced in 2016 (although, of course, most of the costs of complying with the scheme had already been incurred by then). CRC has not yet been consigned to history – the final reports are due by 31 July next year – but firms now need to focus on its various successor schemes, which will build on both the tax and reporting elements.

(Still) Planning for a No-Deal Brexit

30 November 2018

Gabriel Cooper-Winnick, Geoffrey Kittredge, John W. Rife III, Patricia Volhard, Simon Witney, John Young

Agreement by the European Union’s leaders of a Withdrawal Agreement on Sunday ought to have been a moment of certainty for European private equity and venture capital firms. In truth, of course, it would only ever have postponed the uncertainty, because the long-term future arrangements between the UK and the EU still have to be negotiated. But the Withdrawal Agreement includes a transitional period, and that would ensure a smoother ride into the next decade.

Unfortunately, however, the EU’s approval of the Withdrawal Agreement has had the opposite effect. As things stand, the UK Parliament looks likely to reject it on 11 December, and the EU negotiators now say that it cannot be re-negotiated. Sunday’s EU summit has therefore increased the likelihood of a disorderly, “no-deal” Brexit in March next year.

The sentiment in Parliament may yet change. Or, if the deal is rejected in the UK, the EU negotiators may actually be willing to look again at some aspects of it despite what they now say. Several other outcomes are also possible – including another referendum. But a no-deal Brexit, even if it still seems unlikely, is the default outcome if nothing else can be agreed. According to UK law and the EU treaty, the UK is leaving the EU on 29 March and it would take new legislation, and (probably) agreement from all other EU member states, to change that. Firms cannot afford to assume that will happen in time. They need to step up their preparations, or at least they need to check that they really can afford to wait yet another month before activating their contingency plans.

Germany Proposes Very Limited Temporary Permission Regime in Case of a Hard Brexit

27 November 2018

Patricia Volhard, Simon Witney, Philip Orange, Johanna Waber, Jin-Hyuk Jang, John Young, Eric Olmesdahl, Gabriel Cooper-Winnick

The German Federal Ministry of Finance has recently published a draft Act that introduces transitional arrangements to the German Insurance Supervision Act (Versicherungsaufsichtsgesetz) and the German Banking Act (Kreditwesengesetz) if the UK withdraws from the European Union on 29 March 2019 without having concluded a Withdrawal Agreement.

The Draft Act intends to mitigate the negative effects of a Hard Brexit in the German financial sector by authorising the German Federal Financial Supervisory Authority to grant UK insurance companies, credit institutions and financial service providers a temporary permission until, at the latest, the end of 2020.

Whilst helpful, the Draft Act is limited in scope and it will not relieve UK firms from the need to consider and start implementing alternative arrangements for their activities in Germany in the event of a Hard Brexit. In particular, it will not apply to UK-based private equity fund managers who are marketing their funds in Germany.

Unlocking UK Pension Fund Money for Private Equity

23 November 2018

Katherine Ashton, Geoffrey Kittredge, Patricia Volhard, Matthew Dickman, John W. Rife III, Simon Witney

The UK government’s policy towards private equity and venture capital could, at times, be characterised as schizophrenic. For instance, in 2017 it finally responded to industry requests to update the UK’s main private fund vehicle, the limited partnership, with a helpful package of reforms. Unfortunately, the government also simultaneously announced a consultation on some unhelpful limited partnership law reforms (consideration of which is still ongoing). And, whilst apparently wanting to pursue policies that enhance the UK’s position “as a centre for asset management”, its implementation of tax rules does not always support that stated objective – and sometimes undermines it.

FCA Issues Consultation on Temporary Permissions Regime for EEA Firms Following Brexit

19 November 2018

Patricia Volhard, Jin-Hyuk Jang, Simon Witney, John Young, Eric Olmesdahl, Philip Orange, Johanna Waber

As part of its preparation for a possible “no-deal” Brexit in March 2019, the UK’s Financial Conduct Authority (“FCA”) recently published a consultation paper on proposed rules for its “temporary permissions regime”. The regime is designed to provide continuity for firms in the European Economic Area (“EEA”) that currently use their home state “passport” to cover the activities of a UK branch, for the provision of services on a “cross-border” basis into the UK, and for the marketing of EEA funds in the UK.

The Inevitable Policy Response to Climate Change

16 November 2018

Simon Witney

More than 400 private equity and venture capital fund managers have signed the UN Principles for Responsible Investment (UN PRI) – together with around 250 of their investors – and it is quite clear that pressure to invest responsibly is ratcheting up across all asset classes. In most areas, the changes needed are manageable and evolutionary: a better and more effective approach to anti-corruption; more investment in health and safety and supply chain due diligence; and seeking and implementing expert advice on cyber-security, for example.

New Version of “Private Capital” Valuation Guidelines out for Consultation

9 November 2018

Simon Witney

At the end of last month, the International Private Equity Valuation Board (IPEV) issued a draft of the latest version of its valuation guidelines, which for many years have set the market standard in valuations for the private equity and venture capital industry. Established in 2005 by the British, European and French industry associations – and now operationally independent, with support from associations around the world – IPEV regularly reviews and updates its guidelines. The result is that they are widely respected by fund managers and investors alike.

Immigration and Mobility after Brexit: The Good, the Bad and the Ugly for Private Equity Firms

2 November 2018

Guest article by Nicolas Rollason, a partner at Kingsley Napley LLP

Whatever the odds of the UK securing a deal with the EU in the coming months, it is important for private equity firms, and their portfolio companies, to understand how a no-deal scenario could affect their ability to attract and retain people, and the ability of those people to work freely across borders.

First, the good news. As part of its negotiations with the EU, the UK has already agreed that EU nationals and their family members (both already in the UK and seeking to come to the UK) will continue to have free movement rights until the end of the proposed transitional period on 31 December 2020. Of course, in principle that arrangement is contingent on the UK and the EU doing a deal along the lines currently envisaged. But it is highly likely that, even if no-deal is reached, these provisions will remain and continued free movement for EU citizens will be applied unilaterally by the UK to preserve the status quo for a limited period. Failure to do so would be unworkable and hugely disruptive.

European Fund Finance Symposium – a Ten Point Summary

29 October 2018

Almas Daud, Alan Davies, Daniel Horoborough, Pierre Maugue, Felix Paterson, Thomas Smith 

On 24 October, Debevoise sponsored and spoke on a panel at the Fourth Annual European Fund Finance Symposium in London, hosted by the Fund Finance Association. We have summarised below a few of the key topics discussed during what was an enlightening day for all those in attendance.

UK Financial Conduct Authority Explains its Approach to Sexual Harassment Issues at Regulated Firms

26 October 2018

Andrew Lee, Natasha McCarthy, Karolos Seeger

In an interesting letter published last week, the FCA’s Megan Butler (Executive Director of Supervision – Investment, Wholesale and Specialists Division) has outlined how the FCA ensures that regulated firms take sexual harassment issues seriously and expects firms to respond to such allegations.

The Regulatory Implications of a “No-Deal” Brexit

26 October 2018

Simon Witney

Although the current impasse in the Brexit negotiations may yet be resolved, there does remain significant nervousness that the UK could be heading for a “cliff-edge”, disorderly Brexit in March next year. That anxiety is justified, and all sensible businesses have been preparing themselves for that outcome – or at least working out whether they can still afford to wait and see what happens over the coming months.

Sovereign Wealth Funds Respond to Climate Change Risks and Opportunities

19 October 2018

Simon Witney

Many of private equity and venture capital’s institutional LPs are already focused on ESG (environmental, social and governance) issues. They frequently negotiate side letters – or even provisions in the Limited Partnership Agreement itself – that impose ongoing obligations on the fund manager to maintain responsible investment practices, and to report regularly to LPs. For their part, fund managers have generally recognised that these practices will reduce risk and enhance returns (especially the value that can be achieved on exit), and that adopting intelligent and proportionate approaches to environmental and social risks and opportunities is therefore in their enlightened self-interest.

UK Legislation Addresses Brexit Implications of Alternative Investment Fund Managers Directive

12 October 2018

Gabriel Cooper-Winnick, Philip Orange, Patricia Volhard, Simon Witney, John Young

As things stand, it remains unclear whether the United Kingdom and the EU will be able to reach a Withdrawal Agreement in time for the United Kingdom’s expected departure from the European Union on 29 March 2019. If an agreement is reached, it will include a transitional period, which will effectively preserve the status quo for financial services regulation until the end of 2020. For that transitional period, UK-regulated firms will continue to operate under the same rules as now and passporting rights will continue for authorised investment firms or fund managers.

Marketing Private Funds to Individuals

12 October 2018

Simon Witney

For the most part, private equity and venture capital funds are for institutional investors. According to the most recent Invest Europe figures, less than 10% of funds raised in 2017 came from private individuals and, since that figure includes the GP’s commitment, even that overstates the importance of individuals as third-party investors. Pension funds, sovereign wealth funds, government agencies and insurance companies tend to dominate the investor lists of most European private equity fund managers.

The UK’s Proposed National Security Review for M&A Deals

5 October 2018

Simon Witney

Many countries have been looking again at their ability to block acquisitions when they threaten national security. For example, we reported on a change to German law in July last year, and a European Commission proposal (which would cover all EU member states) in October. Most recently, a new law in the United States has increased the power of the Committee on Foreign Investment (CFIUS) to block deals. Such rule changes – often triggered by a controversial foreign acquisition – are understandable, but investors need to know the process and timeline. Vague tests, long clearance procedures or excessive look-back periods can put off investment that would otherwise benefit the economy, and legislators must try to find the right balance.