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.

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.