PRINT THIS PAGE European Commission proposes common private placement regime29/11/2006. Source: SJ Berwin. Stephanie Biggs 
The European Commission’s two-year project to review and update the European legislative framework for investment funds culminated recently in the publication of a White Paper, says SJ Berwin. Inevitably, the Commission’s main focus has been on those investment funds that are sold to retail consumers, particularly those within the "UCITS" regime. However, the Commission has also been considering how the European market can be made more efficient for funds marketed to sophisticated and institutional investors, including private equity funds.
As part of its consultation exercise, the Commission established an Expert Group on Alternative Investment Funds, and the sub-group on private equity funds reported in July this year (see previous Private Equity Comments of 3 March and 7 July). The Expert Group found that "the efficiency of the EU private equity industry suffers from an overly complex and ill suited fund structuring environment which does not support cross border investing.
The additional costs and the additional risks for investors and funds associated with this serve to make the European industry less effective than it could be, particularly in comparison with the US."
The Expert Group made a number of recommendations on how the European environment for private equity funds could be improved. One proposal that seems to have found favour with the Commission is the establishment of a common private placement regime across the EU. The private equity industry has for some time been pushing for the rules governing pan-European marketing to be simplified (see Private Equity Comment of 2 July 2004), and the White Paper seems to be a big step in the right direction.
In the Commission’s view, "there are no compelling investor protection reasons for national regulators to interfere in financial transactions involving professional investors who understand the risks associated with an investment". Consequently, the Commission proposes to establish an EU-wide private placement regime, which it hopes will free up cross-border transactions where funds are being marketed only to institutional investors and other eligible counterparties.
Over the next year, the Commission and CESR (the Committee of European Securities Regulators) will undertake a systematic inventory and analysis of national barriers to private placement with institutional investors, and the Commission plans to report in autumn 2007 on the steps that need to be taken to give full effect to a common private placement regime.
So far, so good. But the devil, as ever, is likely to be in the detail. The Commission has indicated that the key building blocks of a common private placement regime have already been put in place by MiFID (the Markets in Financial Instruments Directive) and the Prospectus Directive. However, as the Expert Group pointed out, neither of these Directives has been drafted with private equity in mind.
Although the Directives provide a good starting point, their rules can sometimes be inappropriate in a private equity context and may, in some cases, need adjusting to fit the private equity marketplace.
As a result, the industry must continue to engage with the Commission over the next year if the proposed regime is to be of real benefit to private equity fund managers and investors.
Stephanie Biggs
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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