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Travers Smith’s Alternative Insights: The diverging paths of private funds regulation
When it comes to the regulation of alternative asset managers, Europe and the US have – until now – been on parallel paths. Since the financial crisis, regulators have argued that private capital fund sponsors should not be exempt from regulatory oversight; on the contrary, their view has been that rules are needed to protect investors, the financial system, and even the real economy. Although private equity and similar strategies did not cause or contribute to the global financial crisis – and although most investors in such funds are sophisticated institutions – legislators on both slides of the Atlantic have brought forward extensive regulations.
These reforms have had a different emphasis and impact. In the EU, the Alternative Investment Fund Managers Directive (AIFMD) is highly prescriptive. It includes an extensive rules-based regime, affecting reporting to regulators, investors and other stakeholders, fund marketing, sponsor governance, safekeeping and valuation, as well as imposing demanding capital requirements. The AIFMD even seeks to regulate capital maintenance in underlying portfolio companies.