The Alternative Investment Fund Managers Directive : and its Impact on Norwegian Private Equity

Abstract

The financial crisis, together with more or less related events such as the fall of Lehman Brothers and the Bernard Madoff fraud got the ball rolling at the European Commission about introducing a European Directive which would aim at harmonizing the regulatory framework for alternative investment funds across the EEA. This resulted in the Alternative Investment Fund Managers’ Directive (AIFMD), an all‐encompassing controversial set of regulations which is to be transposed to national law by mid‐2013. This paper discusses possible implications of the Directive for the Norwegian private equity market. Private equity is only one of the target activities of the AIFMD. In Norway the Directive implies extensive additional regulation, as private equity is hardly regulated to this day. This translates into higher compliance costs. The major changes will imply the need for private equity fund managers to request authorization; the requirement to appoint depositaries for each managed fund; marketing requirements posing a possible obstacle to accessing foreign capital; and transparency requirements radically changing the way in which activities are communicated externally from PE fund managers. The Directive will probably take a heavier toll on venture capital funds, which represent a large part of capital under management in Norway and are usually smaller, compared to buyout funds, thus feeling the additional costs weighing more heavily with respect to the size of the fund. Regulators should attempt mitigating the costs of the transition, especially for venture capital funds, through e.g. favorable tax schemes or other incentive mechanisms.