AIFMD May Restrict EU Investors' Access to Private Equity Brendan McMahon, James Greig and Ashley Coups
The leading global private equity managers, in terms of funds raised and diversification of assets, are predominantly based outside the EU, either in North America or elsewhere. Indeed, the private equity managers that are most attractive to investors today are often located within emerging markets. But how will such third-country managers access European institutional capital following implementation of the Alternative Investment Fund Managers directive (AIFMD)? Indeed, given the challenges created by the AIFMD, will they want to?
Traditionally, private equity managers have raised funds through a combination of private placement and passive marketing. Passive marketing is a process whereby the institutional investor makes a direct approach to the private equity manager. Passive marketing is not regulated by the AIFMD.
But the AIFMD places additional burden on third-country private equity managers accessing EU institutional investors through private placement regimes – where the directive requires managers to meet transparency obligations and to operate within a set of rules in relation to EU portfolio companies.
Third-country private equity managers, having understood the consequences of the AIFMD, need to develop strategies detailing how they will continue to access European institutional capital.