Some fund managers are passing up European investment opportunities in a bid to avoid the Alternative Investment Fund Managers Directive (AIFMD), according to a panel discussion at the Guernsey Funds Forum 2015.
The first panel session was titled ‘meeting the needs of European private equity’, including a focus on Base Erosion and Profit Shifting (BEPS) and the AIFMD.
Tim Hames, director general of the British Private Equity and Venture Capital Association (BVCA), said that BEPS provided a challenge to the future success of private equity in Europe.
He said: “If we create a world, whether by accident or design, via the OECD BEPS process, in which it becomes so gruesome in terms of tax treatment for investors to get involved in European private equity, then they are not going to do so, even if the returns are alpha, alpha, alpha.”
He added that this is because it would be adding to the demands already being exacted on the industry by AIFMD and there should be one question being asked: “Will this action make Europe a less or more attractive place to outside investors and observers?”
Karen Sands, head of finance at Hermes GPE, answered: “I think delivering European private equity with co-mingled vehicles becomes even more complex, particularly if you are marketing to investors outside of Europe. They are put off by AIFMD and certainly some of the discussions that we’ve had have been around single investor funds.”
James Gee from Weil said that AIFMD had probably proved more onerous for those onshore rather than third countries such as Guernsey, which was able to offer access to the EU through national private placement regimes.
Robert Mellor, a tax partner at PricewaterhouseCoopers, said that Guernsey’s advantage was in having a dual regulatory regime, one that is AIFMD compliant, and another which is free from the requirements of AIFMD. The Island therefore provides flexibility and options.
Emma Bailey, director of the Investment Supervision and Policy Division of the Guernsey Financial Services Commission (GFSC), said that the national private placement route was working well.
Bailey added that Guernsey is seeking to be among the first wave of third countries within any extension of the passport.
Mr Hames said he foresees the commencement of a second version of AIFMD but predicts a more positive outcome.
“I think there are reasons for some cautious optimism, that when the directive is revised, we will start looking at the right questions the right way around and might even make a little bit of movement in the right direction,” he said.
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