German private equity law disappoints industry figures

The German government’s latest legislative efforts to provide incentives for private equity have proved a damp squib, as industry insiders railed against the government’s failure to come to terms with private equity’s economic dynamism. .

The German government has disappointed the private equity industry as expected plans to incentivise the private equity industry in Germany gave minimal help to buyout firms.

The government’s draft legislation on private equity has left many unimpressed through its failure to meet the industry’s demands and the recommendations of an independent report.

The proposals will limit the tax breaks private equity firms receive to €260 million ($353 million). The report claims the government loses €15-20 billion of funds which could be rectified by full tax transparency of fund structures in private equity.

Daniela Weber-Rey, a partner at Clifford Chance, said the figure is a mistake due to the tax transparency claims. She said: “This is certainly based on a misunderstanding and no-one in the industry knows where these numbers come from.”

The government text also recommends support for early stage venture capital investments for firms of below €500,000 in size and of less than seven years of age.

A third segment of the report recommended the disclosure of shareholder identity 10 percent of a company is acquired. The measures appear to be targetted at hedge funds and insiders were bemused that they came during a report into private equity.

It is claimed by insiders this confusion of private equity and hedge funds has been a constant in German politics ever since German vice-chancellor Franz Müntefering accused private equity funds of being locusts.

Weber-Rey said: “The political atmosphere is such that Germany’s politicians clearly intend to improve Germany as a financial center and to recognise the contribution of Private Equity.”

Yet she adds they don’t have the time, or sometimes, sufficient understanding of the industry.

A senior director at a big four firm explained: “The Germans hate private equity, they believe it is run by sharks who deny wonderful Germans their rightful jobs.”

This is because the Germans are much more protective of employment, have a strong moral code and great social conscience, believing you should give them jobs for life, she added.

The legislation, which is designed to take effect next January, will be introduced at the same time as the government attempts to pass a law limiting the interest payments companies can deduct from their balance sheets.