In all industries, lobbying and public affairs have significant roles to play. From those who design and introduce legislation (policymakers) to those who implement rules and are responsible for monitoring the ongoing compliance of firms (regulators), it is important for companies to engage with a broad range of stakeholders at a national, European and, increasingly, international level. In recent years, an increasing amount of regulation has been introduced by a large number of different sources. New regulations are emerging, such as the SEC rules in the US or the Takeover Code in the UK, which will have a far wider impact than merely in their countries of origin.
Lobbying has an extremely important role to play in terms of influencing policy and regulatory developments. In light of the global financial crisis, new legislation to regu- late all financial services sectors, including the private equity asset class, was inevitable.
While most practitioners recognise that there is a need for regulation, it is important that it is proportionate and does not add excessive burdens or make it too difficult to carry out the everyday business of running a private equity firm. However, this balance can be difficult to achieve, particularly at a European level where the policymaking process is quite disparate due to the plethora of stakeholders involved, including the European Commission, the European Parliament and ESMA, before even considering national governments and regulators.
In developing regulations, it is imperative that the policymakers and regulators under- stand the activities and objectives of the industry that they are regulating. Furthermore, they need to recognise the impact that the regulation is going to have to ensure that this is aligned with the intentions of the directive. For example, with a directive like the AIFMD, which has ostensibly been introduced to protect investors, it is important to understand how this is going to affect that group. To do this successfully, those setting the regulation need to be aware of the complex and varied relationships between GPs and LPs. Lobbying has a key role to play in educating those developing and implementing new regulations and the industry being regulated should lead this process.
There are a number of key techniques involved in successful lobbying, the first of which is to ensure that the message being delivered is consistent at all times. All arguments must be clearly thought out before starting any influencing process, to make sure that there are no mixed messages, and those conducting the lobbying should be clear exactly what it is that they are arguing for and against.
It is also imperative to outline the impact that the proposed regulation will have on an individual firm, the industry as a whole and, most importantly of all, how it will affect the wider economy. In order to successfully achieve this, it is important to have involvement from all stakeholders, so with the private equity industry, engagement is needed by GPs, LPs and also portfolio companies, so as to demonstrate the full extent of the new regulation’s impact. Ultimately, it is in nobody’s interest if a new piece of proposed regulation that is designed to protect investors or designed to protect the economy fails to fulfil those aims.
Although consistency of message and outlining the impact of regulatory changes are two of the most significant practices in successful lobbying, there are a number of other useful issues to consider:
• External engagement: building effective relationships with policymakers and regulators both at a national and international level
• Team awareness: maximise the strengths of your internal team and supplement this with external advisers or trade associations where necessary
• Senior management buy-in: ensure that senior members of the management team have bought into this process and understand the ways in which regulation will impact your industry at all levels. It is also essential that senior team members buy into the practice of lobbying and support ongoing engagement with policymakers
• Timing: it is crucial to engage with stakeholders at all stages of the process. While early engagement is fundamental to success, it is also important to continue engaging even after the final implementation of a new directive
• Patience: lobbying is not a quick fix, it takes time and patience to build relationships and, ultimately, influence stakeholders
• Media: ongoing media engagement can be an effective way of ensuring that the industry’s side of the story is heard.
This partial chapter is one of 14 in The European Private Equity Compliance Guide: How to prepare for the AIFMD and wider compliance issues for European fund managers, a new book from Private Equity International.