European PE associations: Keep the status quo post-Brexit

Artificial barriers to PE investment and fundraising will do no good, said the heads of Invest Europe, France Invest and the British Private Equity and Venture Capital Association.

Private equity associations say the status quo on industry regulations should be maintained following the UK’s withdrawal from the EU.

“Our job is to explain to policymakers that you don’t change something that isn’t broken,” said Eric de Montgolfier, chief executive of industry body Invest Europe, in a panel at the IPEM conference in Cannes on Wednesday.

“Basically, you don’t touch the Alternative Investment Fund Managers Directive because we’ve been accustomed to it, we understand how it works. There are some things that can be improved. But if it’s at the expense of seeing this regulation being modified significantly, we prefer the status quo,” he said.

The EU parliament on Wednesday ratified the Brexit Withdrawal Agreement by 621 votes to 49, approving UK’s departure from the bloc on Friday.

Britain’s withdrawal will not be the end of the road for the EU-UK relationship. The ties that bind the two financial markets will remain, noted the heads of industry associations the British Private Equity and Venture Capital Association and France Invest on the same panel.

“The interconnectedness of the UK with Europe irrespective of political decisions is a fact of life and it’s part of our responsibility to make sure that friction costs and the engineering that underlines that is maintained in an appropriate fashion,” said Michael Moore, director general of the BVCA.

The flow of capital into Europe through the UK is crucial to private equity. UK-based funds generated 52 percent or €196 billion of total European fundraising from 2014-18, according to data from Invest Europe and the European Data Collective. In terms of buyouts, the proportion made by UK- based funds is also substantial at 63 percent.

Moore noted that a main agenda for the industry associations is to ensure that policymakers in Europe understand the performance of the private equity sector and “the fact that in the world of lower yields there are still good quality returns to be made and that requires sophistication of investment”. Whether insurance-focused regulation Solvency II or UK pensions offering defined contributions members access to private markets, the debate with policymakers matters, he added.

On Solvency II, France Invest’s director general Alexis Dupont, said that industry associations need to do more to argue with policymakers that the unnecessary constraints for private equity funds should be removed.

“We will have the debate on how to balance financial stability and financing of the economy and I am confident we can find better balance than what we have now,” Dupont said. He added that a system that pushes interests to government bonds when yields are low can only create havoc in the long-term.