Fund managers in the world’s largest private equity market, the US, are experiencing frustration that EU regulators have not yet given them the green light to seek a pan-EU marketing passport provided by the Alternative Investment Fund Managers Directive (AIFMD).
On Thursday, as part of a six-country review, the European Securities and Markets Authority (ESMA) only gave its blessing to managers based in Guernsey and Jersey to obtain the passport, subject to the approval of the EU Commission, Parliament and Council in the coming months. ESMA said it needed more time to assess the regulatory rigor of the US, which only just recently escalated oversight of its private funds community via Dodd-Frank, requiring managers with assets north of $150 million to register with the Securities and Exchange Commission.
In an exchange with Private Equity International's sister publication pfm, a spokesperson for the Private Equity Growth Capital Council (PEGCC) called ESMA’s decision “disappointing,” adding that US managers “are already subject to an extensive US regulatory regime that has objectives equivalent to those of the AIFMD regime.”
The spokesperson added that the PEGCC will continue lobbying ESMA and the European Commission, Parliament and Council on the matter, while looking to protect the access of individual EU sovereigns’ private placement regimes.
Lawyers speculating why the US wasn’t given a positive recommendation by ESMA cite competition concerns between EU and US managers.
“It’s about having a level playing field, which ESMA doesn’t seem to believe EU managers wanting access to US investors have compared to the other way around,” one industry lawyer told pfm.
A second lawyer suggested that ESMA may have included restrictions on non-US managers seeking access to US retail investors as part of their analysis. “Which would be absolutely ridiculous. The AIFMD is focused exclusively on sophisticated, institutional investors –and there’s reason to believe ESMA weighed these rules on retail investors in saying there was an uneven playing field.”
Others have cited differences between the two jurisdictions’ remuneration rules to explain ESMA’s decision. The AIFMD requires GPs to put in place new remuneration policies and practices that discourage excessive risk-taking. In the US, Dodd-Frank instructed regulators to adopt similar regulations, but these have experienced delays.
Lawyers say it remains to be seen what direction ESMA will take when it issues its opinion on the US, but expect that ultimately US managers will be provided the opportunity to seek the passport.