PRINT THIS PAGE Marketing private equity funds in France: MIFID changes the rules06/02/2008. Source: SJ Berwin. George Pinkham 
Until now, it has been extremely difficult - if not impossible - to market private equity limited partnerships in France. The transposition into French law of the European Directive on Markets in Financial Instruments (known as the MiFID) has brought a welcome change to this situation, although it may not yet herald a greater use of LPs in France, says George Pinkham of SJ Berwin. Because private equity limited partnerships are normally "closed-ended", and interests in such partnerships are not redeemable or freely transferable (because no limited partner may sell or otherwise dispose of his interest without the general partner's consent), a private equity fund organised as a limited partnership was unlikely to qualify as a "collective investment undertaking" (organisme de placement collectif or OPC) under French rules, and so could not be marketed in France under the rules generally applicable to OPCs.
In addition, before 1 November 2007, interests in limited partnerships did not constitute financial instruments (instruments financiers) under French law. As a result, it was not possible to market limited partnership interests under the public offering rules, or to benefit from the private placement safe harbour which, under French law, is intended for "qualified investors". There was, however, a tolerance for so-called "passive" marketing: that is, when an investor, acting on its own initiative, contacts the issuer or the promoter for the express purpose of subscribing for interests in such funds.
MiFID altered this landscape by including "shares in companies and other securities equivalent to shares in companies, partnerships or other entities…" in the definition of transferable securities. MiFID has been implemented in France by an Order which became effective on 1 November 2007. As a result of this Order, the Code Monétaire et Financier was amended to add "rights representing a financial investment in an entity, issued on the basis of foreign laws" to the definition of securities that constitute financial instruments under French law. The French AMF has confirmed that the term "entity" includes a limited partnership and that, as a result of this amendment to the Code Monétaire et Financier, interests in partnerships are now financial instruments under French law.
As a result, there are now two possibilities: if the private equity limited partnership is a "closed ended" investment vehicle, then the marketing of its interests in France will be subject to the French public offering rules, and the (very useful) private placement safe harbour will be available. If, on the other hand, the limited partnership is an open-end investment vehicle, then it will normally qualify as an OPC, and prior authorisation from the AMF will be required for the marketing of its interests in France.
So the door is now open for the private placement in France of private equity limited partnership interests. This could be helpful to some European funds, and is a useful step forward - but a number of tax and regulatory obstacles to using and marketing LPs in France certainly remain.
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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