PRINT THIS PAGE The voice of the industry27/07/2004. Source: SJ Berwin.
The European private equity and venture capital industry is facing a number of very serious legal, tax and regulatory challenges despite some outwardly enterprise-friendly governments and a spate of well-intentioned policy initiatives. But good news on two fronts in recent weeks emphasises the importance of effective industry associations, according to SJ Berwin. The first piece of good news came when the European authorities announced how
they intend to implement new capital adequacy rules for banks. Discussions on
those rules had been led by the group of banking regulators charged with formulating
the Basel II rules, and in their original form would have been very bad news for
the European industry. The risk weightings proposed for private equity were overly
cautious, and would have been a serious disincentive for banks to take exposure
to the asset class. As a contributor of around 25 per cent of European private
equity funds, that was a real threat. After vociferous lobbying by the European
Private Equity and Venture Capital Association (EVCA) and others, the threat has
receded. The revised risk weightings for European banks are unlikely to trouble
them and - although they may have other reasons for reducing their exposure to
the asset class - the new rules are no longer likely to be a factor.
The second piece of good news may only be a reprieve, but is a significant
victory nonetheless. In the UK, proposed changes to pensions law would have
made many private equity deals uneconomic, and could have had draconian retrospective
effects. Again, a concerted campaign by the industry, in this case led by the
British Venture Capital Association, has forced the Government to think again:
it has withdrawn the original proposals and promised a re-think over the summer.
In both cases, the battles were hard fought, and not without risk. In the case
of capital adequacy rules, it is clear that - although the lobbyists had impeccable
logic and empirical evidence on their side - the global aim of stability in
the world's banking system could have made the interests of the private equity
industry look like small fry. Similarly, with changes to British pensions law:
the political imperative to ensure that pension schemes are properly funded
- or at least for government to be seen to be doing its bit to achieve that
- could have drowned out perfectly legitimate concerns. It is a tribute to the
tenacity of the lobbyists that they did not.
But more challenges are just around the corner. The EVCA is continuing to fight
moves to force funds to consolidate the accounts of all their portfolio companies
under new international accounting standards. National associations face various
threats on the tax side, and lobbying for coherent rules on European fund structures
is increasingly urgent. That the industry has a strong voice - able to get the
ear of policymakers - is encouraging, but many tough battles still lie ahead.
SJ Berwin is a pan-European law firm with a particular
focus on private equity. It has offices in London, Frankfurt, Munich, Berlin,
Madrid, Paris and Brussels. If you would like further information on its services
to the private equity industry please contact Jonathan Blake or Simon Witney
in its London office +44 (0)20 7533 2222 or visit our website at www.sjberwin.com
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