How New European Rules Affect Private Equity Teams


March 6, 2014

The private equity media has many headlines and stories regarding a new AIFM Directive governing alternative investment funds active in the EU, but eFinancialNews has a practical article about how it may affect the “day job” for private equity professionals. The Alternative Investment Fund Managers Directive comes in to effect in July. Here is a quick summary of FN’s findings.

 ·        Less money for managers:
costs of complying with the directive is likely to affect private equity firms’ bottom line, giving them less profit to distribute to senior managers. The cost of getting compliant with the new regulation is estimated to be about USD 300,000 for an average fund, as well as ongoing fees for firms to market funds to investors in other EU countries.

·        Firms will have to structure deals differently:
Dividend recaps, a practice where private equity owners of businesses take equity out of the portfolio company as a dividend as part of a wider refinancing, may need to be restructured so as to avoid activity seen as “asset stripping”.

·        Only a small number of managers may have to defer their bonuses:  The Directive is likely to affect only the very largest fund managers who operate wide range of strategies or that operate like a hedge fund, for example.

·        You will see different people at the water cooler:
More regulatory and compliance professionals will have to be hired.

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