PRINT THIS PAGE Listed Private Equity Funds
15/08/2007. Source: SJ Berwin. Simon Witney 
Recent listings of private equity and other alternative investment funds in Europe have not fundamentally changed the dominant model - that of the limited life, distributing, partnership style fund, aimed principally at institutional investors and not the retail market, notes SJ Berwin. But they have prompted Europe's stock exchanges, and the London market in particular, to re-examine the platform that they offer to those funds - and to make some important changes to facilitate flotations.
Last year, the UK's FSA made a proposal which would have enabled the London Stock Exchange to mount a stronger challenge to Euronext's position. The proposals would have bolstered London's existing two tier regime for listed investment funds, which includes a lighter regime for "overseas companies". But, in response to concerted lobbying, the FSA announced in April that they would instead abandon the existing alternative regime for overseas companies (under Chapter 14 of the Listing Rules) and move to a unitary rulebook. That was disappointing for many, who felt that it would continue to drive funds to other markets - even though some relaxation of the more stringent regime (under Chapter 15) is anticipated.
The London Stock Exchange has now announced that it will fill the gap with the launch in November 2007 of a new "Specialist Fund Market" for hedge funds, private equity funds and specialist property funds. The new market will operate alongside the (to be modified) regime for fully listed funds, and the active funds market on AIM, London's junior market. The new market will be regulated, but the full rigours of the Listing Rules will not apply to it. It will be available to UK or non-UK entities, and it will be possible to list limited partnerships.
The new market, unlike the main market, is clearly not designed for funds that are targeting retail investors, and the extensive eligibility criteria and continuing obligations that apply to those funds will not apply. But the admission process will be more onerous than for AIM (which usually does not require a prospectus to be prepared) and it looks like a halfway house between the two.
The choice of three distinct markets in London for specialist investment funds may look like overkill but, given that many funds have recently been looking for sources of permanent capital, this greater choice is to be welcomed. Whether the greater opportunity to list funds will stimulate further moves away from the dominant limited partnership model remains to be seen, but the long standing investors in the asset class are likely to prefer private investment structures for some time yet.
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 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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