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The industry was slow to lobby its case in the halls of Washington and Brussels as the Alternative Investment Fund Managers Directive, Dodd-Frank and the Solvency II insurance regulations went ahead, leaving it to play catch-up.
Despite this, they have scored some relative success including clearer rules on disclosure and transparency in the case of the AIFM, and a 10 per cent reduction in the capital buffers that insurers need to hold against their private equity assets under Solvency II.
But two other pieces of legislation – one new and one updated – now threaten the business model. The first from Europe is the proposed update to the Financial Conglomerates Directive, known as Ficod. It was introduced in 2002 as a means of ensuring that financial institutions that operated in a number of businesses, for example banking and insurance, were adequately capitalised and regulated effectively.
Given that this failed spectacularly during the financial crisis in 2008, the European Commission has decided on an overhaul, with revisions expected to be unveiled over the summer. The changes have the potential to force private equity firms to change their fund structures, reducing tax efficiencies and increasing costs.
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