The EU's Capital Markets Union project has improved and harmonised the regulatory environment across Europe and has contributed to the continent becoming a more attractive investment destination over the last five years. Although some voices around the world are calling for greater protectionism, it is essential to build on this success in the years ahead.
Keeping investment flowing and removing barriers to cross-border capital flows is not only critical to the inherently international private equity industry, but also the companies that the industry backs, its investors, and ultimately European citizens.
In the face of sub-zero interest rates and an ageing population, European investors, such as pension funds and insurers, must be able to invest in a range of different assets in Europe and beyond if they are to stand a chance of achieving the returns needed to pay for the retirements of millions of European citizens.
Cross-border barriers prevent companies from accessing more diverse, stable and resilient forms of funding. For private equity, cross-border structures and marketing are key. Many private equity firms, as well as their investors and advisers, will have direct and indirect connections with firms around the world. A proper and workable third country regime would have the potential to greatly enhance the investment opportunities available to EU investors.
It is vital that National Private Placement Regimes (NPPRs) are available for small and large third country fund managers in the short and long-term. They should be an integral part of an efficient, uniform and commercially-sensitive third country regime. Some non-EU fund managers may decide that they only wish to market their funds in specific member states, rather than the whole of the EU. Applying the full passport in these cases would not be proportionate.
Extending the availability of the European Venture Capital Fund (EuVECA) regime to third country funds and fund managers would be a sensible step. Europe should take the initiative in developing a regime that is open, welcoming and gives EU investors access to a wider range of managers. In return, such a move would ensure that the European economy benefits from non-EU investor capital.
Global investors are increasingly looking towards Europe. Almost 90% of investors think Europe has become a more attractive investment destination over recent years, according to Invest Europe’s Global Investment Decision Makers Survey 2018. This is positive testimony to Europe’s achievement in cultivating an environment conducive to investment. It will be important to ensure that a fine balance remains between introducing safeguards, such as screening mechanisms, and maintaining an overarching investment climate that is open and competitive.
With its international structure, often with multiple entities in different countries, private equity is susceptible to double taxation. It is therefore important to ensure tax neutrality between direct investments and investment through private equity funds. To that end, transposition of the OECD BEPS standards (Action 6 on treaty abuse in particular) should allow private equity funds to continue to use double tax treaties.
IPOs are an important route for private equity-backed companies to take the next step on their growth journey. It is important for the EU to continue promoting high-quality capital markets, including the development of a vibrant IPO ecosystem.
Read more about the private equity industry's key policy priorities for 2019 to 2024 in our Manifesto.
The EU Alternative Investment Fund Managers Directive (AIFMD or Directive 2011/61/EU) regulates the management and marketing of alternative investment funds (AIF) in the European Economic Area.
The European Venture Capital Fund (EuVECA) Regulation allows venture capitalists to market their funds to investors across the EU through a voluntary EU-wide passport without having to meet all of the demands of the AIFM Directive.
The requirement for unanimity amongst EU Member States on any legislative proposal tends to limit the amount of EU action on tax. This fact – and the global nature of the issues currently confronting tax policymakers particularly around erosion of the tax base – has helped to establish the Organisation for Economic Cooperation and Development (OECD) as the primary standard setter.
EU law oversees the conditions for the issuance of securities on public markets. The Prospectus legislation sets out the information to be disclosed in the listing prospectus, which is made available to investors when a company plans to issue shares or securities. It also creates a passport mechanism for public offers and admission to trading of securities in the entire EU. Entities issuing shares on public markets also have to comply with EU market abuse rules.
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