Private equity attacks EU plan

The private equity industry has made a scathing attack on regulatory proposals from the European Union, saying they could restrict free movement of capital.

Many parts of the European Commission's draft directive on alternative investment fund managers contradict rules about capital movement in the European Community Treaty, says the European Private Equity and Venture Capital Association.

The EC's proposals, a response to public anger at the excessive risk-taking that led to the credit crisis, would require alternative fund managers to register, seek government authorisation, and disclose more about themselves and their investments.

The City of London - home to much of Europe's hedge fund and private equity industry - has criticised the added regulatory burden.

Left-leaning European politicians say the proposals do not go far enough.

Jonathan Russell, EVCA chairman and head of buy-outs at 3i, told the Financial Times he was confident of persuading governments to push for wholesale changes in the directive, especially after elections dealt heavy losses to the socialists, who were its main architects.

"The directive would be incredibly complicated - it could really be quite dangerous. You are in danger of clogging up the system," Mr Russell said.

"We can make quite a lot of difference. People in the European parliament and Commission don't want poor-quality legislation. Member states understand that and want . . . a workable solution."

The Commission had no comment.

The EVCA said the directive's requirement that private equity or hedge funds based outside the EU comply with its rules if they raise money from European investors ran contrary to the principle of free movement of capital enshrined by the treaty.

"You are opening up the door to all sorts of responsive legislation, not only in the US, but also Asia," Mr Russell said.

The EVCA, which has formed a Brussels taskforce to lobby against the directive, said the regulation would discriminate against private equity owners of companies.

Mr Russell said that if greater transparency and disclosure were needed, these should be demanded of all unlisted companies, such as those owned by sovereign wealth funds, families or entrepreneurs.

Additional reporting by Nikki Tait

EVCA requests

* Extend transparency requirements to all private companies * Limit regulation only to funds managing more than €1bn * Grandfather clause excluding unleveraged funds already raised * Accommodate differences between hedge funds and private equity * Grant passport rights to non-European Union funds to market themselves to professional investors