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AIFMD passport no longer seen as the ‘silver lining’

Chris Hamblin, Editor, London, 16 February 2017

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The UK's investment fund sector no longer views the securing of a "third-country passport" as the best way of gaining access to investors in the European Union, according to Tim Hames (pictured), the director-general of the British Private Equity & Venture Capital Association.

Hames was speaking as a panellist at the Guernsey Funds Masterclass in London on the impact of Brexit on fundraising. His fellow panellist, Phil Bartram, a partner at the law firm of Travers Smith, agreed that Brexit had raised questions about the best way to sell funds to European investors in future.

The EU's Alternative Investment Fund Managers Directive (AIFMD) entitles investment managers based in the UK to a passport that will help them to gain access to investors in the EU. Without it, they would have to rely on the pre-existing national private placement regimes (NPPRs), which many jurisdictions are thinking of phasing out and replacing with the passport, despite the fact that NPPRs offer many investment managers a more efficient route to market.

Hames said: “I think it’s worth emphasising the point that even before the referendum had occurred, industry sentiment had become more ambiguous as to what it really wanted. At the beginning of the whole AIFMD passport, industry sentiment was very much that the passport was the silver lining in the cloud. Three or four years into the regime and a closer inspection of what the silver lining actually was, people have already started to say, ‘well, could we keep both systems running for a bit longer please, and perhaps not put all of our eggs into this particular basket?’

“So, it’s not as if some sort of ‘get out of jail free’ card has been taken away from us by the referendum result. It was a more complicated evolving debate anyway.”

Bartram, who said that a “third-country passport was not a panacea for the UK industry as we go into Brexit,” described his experience in relation to non-EU funds that used NPPR as largely positive.

“I personally think that it’s a very successful, very workable route to market. It’s predictable and certain for the time being. Not every European jurisdiction has a national private placement regime, but all of the important ones, from the perspective of having significant numbers of active limited partners and investors, do have them.”

He made reference to Apax Partners, Cinven, BC Partners and CVC as non-EU funds that had raised significant sums recently or were in the process of doing so.

“These are mega funds and they’re doing it perfectly happily. In fact, on a recent one, we managed to a get a fund registered in nine jurisdictions, in a little under two months from start to finish, so it can be done. Those are examples of pretty significant firms with pretty significant budgets and money to throw at it, but it also works for other players.”

Guernsey Finance hosted the event, which attracted an audience of more than 200, in conjunction with the Guernsey Investment Fund Association. Carey Group, Mourant Ozannes, Ogier and Trident Trust were the sponsors.

Niyamat Fazal, the head of UK Private Equity at Langham Hall, commented: “First-time fund raisers are finding it harder whereas it’s easier for successor funds. It brings into question what kind of fund structures are being used post-Brexit. There's been a flight to use non-UK structures. I think Guernsey will pick up some of those."

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