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Improving the environment across Europe07/06/2006. Source: SJ Berwin. Simon Whitney
 At the end of January this year, the European Commission announced that it had established two groups to look at how the European framework for investment funds could be improved.
One of those is focused on Alternative Investment Funds, and comprises two sub-groups: one looking at hedge funds and the other at private equity. The private equity group includes many leading industry figures from across Europe, and will be able to present the key issues facing the industry very effectively when it reports in June this year. That report will feed into a White Paper, due to be published by the Commission in October.
It is excellent news for the industry that the Commission is seeking some high-level expert input into its deliberations, and that the terms of reference of this group are broad enough to allow discussion of a wide variety of topics.
The group - which was suggested by a more general working group on asset management that reported in May 2004, in which the European Private Equity and Venture Capital Association (EVCA) played a major role - has been asked to report on "legal, organisational, regulatory, administrative and other barriers" to the development of private equity (including venture capital) on a cross border basis, which gives scope to cover ground far beyond the (critical) fund structuring issues that have been raised with European policy-makers over many years, and should include operational barriers and frustrations emerging from European and national regulation, company law and anti-trust rules - to take just three examples.
The announcement coincided with publication in February of a "feedback statement", summarising views on questions raised by the Commission in July last year. Again, these questions were aimed at finding ways to facilitate a single market in investment funds, and included sections on private equity, real estate and hedge funds. Apparently a large majority of the respondents to the Commission's survey were in favour of a "common private placement regime" to facilitate offerings across Europe to "qualified investors", and no doubt that will be one theme that the expert group will pick up on.
In fact, that was one aspect of a wider concern identified by the feedback statement: the fragmentation of laws and regulations across European countries. That is indeed a frequent complaint of private equity practitioners, and a real source of inefficiency in practice. As Europe's private equity houses usually operate across several jurisdictions, the need to navigate such a diverse array of fiscal and legal frameworks can cause real problems. Whether there is much that can be done about that is another question, but one that is absolutely worthy of serious debate.
There are those who will view this focus on the industry with suspicion, and certainly recent scrutiny from national policy-makers has not all been good news. Clearly, it is critical to avoid the "25+1" problem: creating an additional layer of rules that also have to be navigated, on top of those of the member states.
That has been a growing problem in recent years, as the industry has made clear to law-makers. But there may well be important steps forward that can be taken - or, at the very least, mistakes that can be avoided - if Europe's key law-makers understand the industry better, and the benefits that it delivers. The need to make it easier to navigate European rules is clear, and has to be recognised by those in a position to do something about it.
Harmonisation across Europe is no doubt going to take a long time - the EVCA and many others have been telling the European Commission about the problem for many years already, and change isn't going to come overnight. But if the expert group can help to shape the White Paper this year, that would be a real step forward, and may help to persuade the real decision-makers - national governments - of the need for change.
Simon Witney
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 our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com.
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