Private equity secondaries firms must be prepared to adjust their marketing strategies to the changing regulatory landscape in the European Union, according to a report from data company Merrill Datasite and BackBay Communications.
In the EU, secondaries firms are facing stringent regulations introduced by the Alternative Investment Fund Managers Directive. The directive, which comes into effect on 22 July 2014, will require alternative fund managers to be given a licence in order to market funds in the EU.
The law requires higher capital requirements, a higher level of reporting and disclosure and changes to risk management policies.
Michael Clarke, who leads EMEA investor relations of CBRE Global Investors in London, said the licence will allow managers to market and promote their funds across Europe in an easy and efficient way.
“The challenge that will come on the secondaries side is how people can promote secondaries in the event that people don’t have a licence,” he said. “That’s why having a licence make it so much better for managers.”
AIFMD compliance will complicate secondaries marketing strategies, potentially causing firms to allocate more resources to marketing efforts.
The new law means “more preparation, more time, more cost involved and, last but not least, more education and talking needed as to how you will cope with new challenges”, explained Diana Meyel, chief financial officer at Munich-based direct secondaries firm Cipio Partners.
“All in all, the AIFMD will be game changing for the whole industry,” she said.
Any firm whose strategy includes marketing to EU investors should seek legal advice before making any moves, according to Heather Stone, a partner at law firm Edwards Wildman.
“Non-EU AIFMs seeking to avoid unintentionally becoming subject to AIFMD, at least at this early juncture, would be well advised to consult with an experienced US attorney to learn how they can manage their activities appropriately going forward,” she said.