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What’s the latest on the AIFM directive?
(VentureCapital Magazine, January 2010)
January 10, 2010

Interview with Uli Fricke, Managing General Partner of Triangle Venture Capital Group

VC Magazin: At the EVCA Venture Capital Forum in October you reported about the effects of the AIFM directive on the private equity sector. How has the status of the negotiations in Brussels changed since then?
Fricke: A lot has happened. Up to the end of last week there had been extensive negotiations about the subject in the European Council of Ministers, which addressed the directive along with the ECON Committee of the European Parliament and the EU Commission. Sweden, which currently holds the EC Presidency (July-Dec. 2009), was very unhappy that no compromise text could be adopted. There were too many issues that the countries could not agree on.

VC Magazin: Which items were in dispute in the Council of Ministers?
Fricke: It starts with the scope of the directive, that is, the question of a minimum size above which the directive will apply to a fund or fund manager. They also do not agree how non-EU managers who place non-EU funds are to be treated. There is no agreement about manager remuneration and no agreement with regard to the custodian.

VC Magazin: Is the management remuneration issue about VAT?
Fricke: No, that has nothing to do with it, but rather, considerations about limiting bonuses. This point was newly introduced. It is a misguided approach, because clearly it is not understood that there is no better instrument for leveling interests than the carried interest based solely on dividends that exists in the private equity sector.

VC Magazin: Which elements of the directive have already been agreed?
Fricke: There is agreement about the obligation to have a portfolio valued externally, which in the view of the Council of Ministers will not be mandatory for certain types of investment. In addition, a compromise was found for the underlying capital requirements for managers that the sector would probably be able to cope with. An agreement was also reached regarding the reporting requirements for portfolio companies, but it isn¡¯t optimal for the private equity sector yet.

VC Magazin: What¡¯s next in the matter of AIFM regulation?
Fricke: Because the Council of Ministers could not arrive at a complete harmonization of the text, the AIFM directive will extend into the next presidency period. In the coming year, Spain will take up the issue again. But they first want to see what the Parliament¡¯s ECON Committee has to say about it, which won¡¯t happen until April. For that reason it¡¯s quite possible that the Spaniards in the Council of Ministers will not work much on the draft but hand it over to the Belgians more or less as-is.

VC Magazin: What do you expect from the ECON Committee?
Fricke: Early last week, the Parliament and the ECON Committee presented their proposed compromise. In this paper, the general considerations in the preface are at least heading in the right direction. Now the declarations have to be translated into concrete legal texts. That is supposed to happen by February. The EVCA and the BVK are working very intensively to ensure that practical approaches are reflected in the laws.

VC Magazin: Can we give the ¡°all clear¡± on the basis of these developments?
Fricke: By no means! The big challenge still lies in the fact that this directive is intended to cover all alternative asset managers. But there is a big difference between someone who deals in securitized bonds every day and one who holds eight to 10 companies in a fund for three to seven years. Because the other lobbies are also very active, it¡¯s incredibly important for the venture capital and private equity sector to make its voice heard throughout this process.

VC Magazin: Thank you for speaking with us.

About
Uli W. Fricke is Managing General Partner of Triangle Venture Capital Group Management GmbH and Chairwoman Elect of the European Private Equity and Venture Capital Association.

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