* AIFM Directive increases costs for private equity groups
* New rules to come into effect in July
* Big groups less affected
By Arno Schuetze
BERLIN, Feb 28 The costs of new rules for
investors which buy and sell companies could drive smaller
players out of business or force them into tie-ups with peers,
private equity managers said.
As hundreds of financiers gathered in Berlin for the annual
SuperReturn conference, some bemoaned the 'excessive regulatory
burden' that lawmakers are loading on to the private equity
Europe's Alternative Investment Fund Managers Directive,
which is set to go live in July, includes provisions requiring
funds to regularly stress test their liquidity, keep securities
at an external custodian and issue financial reports to their
"AIFM makes everything slower, cumbersome and significantly
more expensive - without providing a real benefit," said Daniel
Flaig from Swiss buyout group Capvis.
"Dozens of private equity groups will likely disappear and
others will seek to survive through mergers to cope with the
regulatory burden," he added.
The industry association EVCA said rising regulatory costs
may be among the factors prompting weak groups to give up.
"The AIFM Directive is a game changer: many private equity
groups will have a painful transition, but it will not be life
threatening for most of them," Simon Witney, the chairman of
EVCA's regulatory committee, said.
Separately, some foreign private equity groups may shun the
"There will be some General Partners (private equity
managers) who frankly will decide not to market in Europe," said
John Morgan, partner at Pantheon.
The new rules will affect some 1,000 of the world's roughly
5,000 private equity groups, while another 1,000 groups that are
active in Europe will likely fall below the scheme's cut-off
volume of 500 million euros in managed funds.
Europe remains one of the most important markets for private
equity investors, last year accounting for a quarter of the $327
billion euros in worldwide transactions and a fifth of the total
of $308 billion raised in funds, according to ThomsonReuters
While private equity managers are struggling to meet the
demands of their investors, who have seen returns drop in the
economic crisis, the costs for implementing the new rules - be
it for hiring and training staff, appointing advisors or
contracting services groups - are increasing the pressure.
Not all companies will be affected in the same way.
Globally active groups, used to close scrutiny from U.S.
authorities, will likely be better off than smaller groups from
countries like Germany, which so far has had a more relaxed
David Rubinstein, founder of Carlyle, one of the world's
biggest buyout groups, says the impact of AIFM has not been as
drastic as expected.
"Real regulatory clampdown on private equity did not
happen," he said.
But Jacek Siwicki from Warsaw-based private equity group
Enterprise Investors said the extra costs would be enormous for
"If you are a small group it can be much more than 5 percent
in additional administrative costs," he said.
Torsten Krumm, partner at small German buyout group Odewald
said: "Until now, costs for investor relations make up 3-5
percent of total administrative costs. That will rise to 5-8
percent through AIFM."