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The British Private Equity and Venture Capital Association responds to proposed restrictions on private equity remuneration included in the revised draft of the AIFM Directive.
According to Simon Walker, Chief Executive of the BVCA:
‘The draft directive's proposals on remuneration for alternative investment funds don't fit the private equity model and could leave investors worse off.
Managing remuneration to limit risk is a long-held tenet of private equity. The private equity industry - unlike banks - has structures that directly align the interests of owners and managers.
Carried interest is paid after a long period of time - far longer than the deferral periods proposed in the directive - and only after actual cash has been returned to investors.
There are no payments based on valuations or short-term returns, no options or phantom shares. No payments for failure.
Private equity remuneration should serve as a model for the rest of the financial sector.
There may be justification for controlling bonuses in systemically important institutions whose failure can to lead taxpayer-funded bailouts. For other businesses, particularly involving sophisticated professional investors, remuneration is a matter negotiated between owners and managers and should remain so.
The fund industry is wide and diverse; the financial services industry is even wider and even more diverse. One-size-fits-all policies simply won't work.’