legal & regulatory bulletin ... venture capital fund managers across developing and developed...
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At its May meeting in Washington, EMPEA’s Legal and Regulatory Council discussed the regulatory changes facing the private equity industry and the likely impact of those changes on the membership of EMPEA.
The Council concluded that some of the changes, such as the European Alternative Investment Fund Managers Directive (AIFMD), would impact the industry globally whilst others, occurring on the margins, still had potentially far-reaching implica- tions, such as the erosion of cross-border enforcement of arbitral decisions. Council Members believed that the changes would, in aggregate, impact the cost of managing and operating private equity firms in our markets. This issue of the Legal & Regulatory Bulletin addresses both those regulatory developments that we believe have a global reach as well as evolving fundraising and deal making conditions in markets where you, the EMPEA membership, are most active.
We start with an update on an important but perhaps poorly understood aspect of the AIFMD, namely the importance of cooperation between the European supervisory authority and its counterparts in other countries. SJ Berwin, an international law firm, apprises us of the status of current cross-border information sharing and enforcement arrangements, a pre-requisite to the eventual implementation of a passporting regime for marketing by non-EU managers or by EU managers’ marketing non-EU funds within the EU.
Moving south, ECP, a pan-African fund manager, provides guidance on how private equity dealmakers on that continent can contend with the complexity and diversity of local legal regimes and judicial environments. Colombian law firm Brigard y Urrutia then offers a perspective on that country’s prospects, not just as an emerging source of investor capital but also as an increasingly attractive investment destination.
Finally, in our annual Debevoise & Plimpton update on terms and conditions for emerg- ing market private equity funds, we see that the increasingly strong negotiating power that investors wield in a capital constrained world is yielding important changes in fund structures with potential long term ramifications for the conventional fund model.
We look forward to exploring the regulatory changes faced by and shaping our industry when EMPEA next convenes at its annual London events on 15th and 16th October 2013. Until then, we invite your comments and observations on the matters that are puzzling and concerning you. We’ll do our best to address some of those concerns in the next Bulletin.
In the meantime, enjoy your summers—we look forward to engaging with you again in the Autumn.
Sincerely, Mark Kenderdine-Davies General Counsel and Company Secretary, CDC Group plc Chair, EMPEA Legal & Regulatory Council
A Publication of the Emerging Markets Private Equity Association
Issue No. 9 – Summer 2013
Legal & Regulatory Bulletin
ESMA Third Country Cooperation Arrangements under AIFMD .......................3
The Legal Challenges of Private Equity Deal Making in Africa ..................6
The Changing Landscape of Private Equity Fund Formation ...........................9
The Outlook for Private Equity in Colombia ...........12
EMPEA Fundraising Masterclass in Mumbai .....16
EMPEA Guidelines Update ..............................16
1077 30th Street NW, Suite 100 Washington DC 20007 USA Phone: +1.202.333.8171 Fax: +1.202.333.3162 Web: empea.org
The Emerging Markets Private Equity Association (EMPEA) is an independent, global membership association whose mission is to catalyze the development of private equity and venture capital industries in emerging markets. EMPEA’s 320+ member firms share the belief that private equity can provide superior returns to investors, while creating significant value for companies, economies and communities in emerging economies. Our members include the leading institutional investors and private equity and venture capital fund managers across developing and developed markets. EMPEA leverages its unparalleled global industry network to deliver authoritative intelligence, promote best practices, and provide unique networking opportunities, giving our members a competitive edge for raising funds, making good investments and managing exits to achieve superior returns. EMPEA’s members represent nearly 60 countries and more than US$1 trillion in assets under management.
1077 30th Street NW • Suite 100 • Washington, DC 20007 USA Phone: +1.202.333.8171 • Fax: +1.202.333.3162 • Web: empea.org
Robert W. van Zwieten President & Chief Executive Officer
Jennifer Choi Vice President, Industry and External Affairs
Shannon Stroud Vice President, Programs and Business Development
Serge Desjardins Senior Advisor
Phillip Reid Financial Controller
Kyoko Terada Director, Membership
Holly Freedman Director, Marketing and Communications
Nadiya Satyamurthy Senior Director, Consulting Services
Michael Casey Director, Consulting Services
To learn more about EMPEA or to request a membership application, please send an email to email@example.com.
Maryam Haque Head of Data and Analysis
Jeff Schlapinski Senior Analyst, Research Department
Sam Verran Senior Analyst, Research Department
Molly Brister Analyst, Research Department
Emily Sandhaus Senior Manager, Programs and Events
Carolyn Kolb Senior Manager, Marketing and Communications
Aisha Richardson Executive Assistant to the President & CEO, Office Manager
EMPEA Legal & Regulatory Council Mark Kenderdine-Davies (Chair) CDC Group plc
Benjamin Aller SJ Berwin
David Baylis Norton Rose
Carolyn Campbell Emerging Capital Partners
Folake Elias-Adebowale Udo Udoma & Belo-Osagie
Laura Friedrich Shearman & Sterling LLP
William Hay Baring Private Equity Asia
Kem Ihenacho Clifford Chance
Geoffrey Kittredge Debevoise & Plimpton LLP
Prakash Mehta Akin Gump Strauss Hauer & Feld LLP
Zia Mody AZB & Partners
John Morgan Pantheon
Peter O’Driscoll Orrick, Herrington & Sutcliffe LLP
Paul Owers Actis
Mara Topping White & Case LLP
Jordan Urstadt Capital Dynamics
Solomon Wifa O’Melveny & Myers
Disclaimer: This material should not be construed as professional legal advice and is intended solely as commentary on legal and regulatory developments affecting the private equity com- munity in emerging markets. The views expressed in this bulletin are those of the authors and not necessarily those of their firms. If you would like to republish this bulletin or link to it from your website, please contact Holly Freedman at firstname.lastname@example.org.
EMPEA Legal & Regulatory Bulletin Summer 2013 3
ESMA Third Country Cooperation Arrangements under AIFMD By Gregg Beechey, SJ Berwin
The European Securities and Markets Authority (“ESMA”) announced on 18 July 2013 that it has approved global supervisory cooperation arrangements between the secu- rities regulators of the European Union and their third country counterparts. The arrangements were negotiated by ESMA on behalf on the EU Member States, the additional three countries which make up the European Economic Area (Iceland, Liechtenstein and Norway) and Croatia, whose accession process completed on 1 July 2013 making it the EU’s 28th Member State.
What are these arrangements? Under the provisions of the Alternative Investment Fund Managers Directive (“AIFMD” or the “Directive”), the access of third country alternative investment fund managers (AIFMs) and alternative investment funds (AIFs) to European markets through national private placement regimes (or, from potentially 2015, through a pan-European passport regime) raises a number of challenges for EU regulators who want consistency in the regulatory protections afforded to professional investors based in the EU.
The AIFMD contains a broad framework for the regulation and supervision of such third country entities, including requirements for EU and third country regulators to enter into cooperation and exchange of information arrange- ments. The operational detail of these provisions was provided in the European Commission’s (the “Commission”) Level 2 Delegated Regulation No. 231/2013 (the “Level 2 Regulation”) which was issued in December 2013. The stipu- lated cooperation arrangements were required to be in place by the AIFMD’s implementation deadline of 22 July 2013.
Prior to the publication of the AIFMD in the Journal of the European Union in July 2011, the Commission sent a request to the Committee of European Securities Regulators (ESMA’s predecessor) requesting assistance in relation to the content of the Directive’s implementing measures, i.e., the Level 2 Regulation. In response, ESMA issued two con- sultations setting out its draft advice on these measures in summer 2011, the latter of which dealt with the various third country issues raised by the Directive including the required supervisory cooperation arrangements.
The advice contained in ESMA’s initial consultation on these issues did not distinguish between the potentially relatively light “systemic risk information only” provisions, which the
Directive makes clear could be appropriate as the minimum amount of information required before non-Directive pr