On behalf of the Public Affairs Executive (PAE) of the EUROPEAN PRIVATE EQUITY AND VENTURE CAPITAL INDUSTRY

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1 On behalf of the Public Affairs Executive (PAE) of the EUROPEAN PRIVATE EQUITY AND VENTURE CAPITAL INDUSTRY February 1, 2013 To Re ESMA Response to ESMA Consultation paper: Draft regulatory technical standards on types of AIFMs, 19 December 2012, ESMA/2012/844 Table of Contents Table of Contents...1 Introduction...2 Specific Response to Sections and Questions...3 I. Section II - Background...3 II. Section III - AIFMs of open-ended/closed-ended AIF(s)...3 III. Section IV - Other criteria to determine the application of the AIFMD to certain types of AIFMs...4

2 Introduction We write on behalf of the representative national and supranational European private equity and venture capital ( PE/VC ) bodies. Our members cover the whole investment spectrum, including the institutional investors investing in a broad range of PE/VC funds, as well as the PE/VC firms raising such funds, who in turn invest in the full life-cycle of unlisted companies, from high-growth technology start-ups, to the largest global buyout funds turning around and growing mature companies, and thus we speak on behalf of the entire European PE/VC industry, investors as well as managers. We welcome the opportunity to respond to ESMA s consultation concerning its Draft Regulatory Technical Standards on Types of AIFMs. As always, we stand ready to provide whatever further contribution to this work ESMA might find helpful, including attending meetings and contributing further materials in writing. 2

3 Specific Response to Sections and Questions I. Section II - Background Q1: Do you agree with the approach suggested above on the topics which should be included in the draft regulatory technical standards? If not, please state the reasons for your answer and also suggest an alternative approach. We agree with the approach taken by ESMA in the drafting of the regulatory technical standards. We have no comments on the distinction between closed and open-ended funds and are happy to support the position of ESMA in this respect. We also agree with the fact that ESMA does not address in the draft regulatory technical standards the other topics covered in the previous ESMA discussion paper on Key concepts of the AIFM Directive and Types of AIFM (ESMA/2012/117). In particular, we consider that the Level 2 provisions (cf. European Commission s Delegated Regulation (C(2012) 8370 final) are sufficient to define leverage and need no further development in regulatory technical standards or guidelines. We therefore agree with the Level 1 and Level 2 provisions pursuant to which only financing creating an exposure at the level of the fund (the AIF) should be considered leverage. 1 Last, we understand that in respect to delegation, further Guidelines may be expected pursuant to Article 82 of the European Commission s Delegated Regulation. We are committed to an ongoing dialogue with ESMA and are willing to contribute to any further discussions that may take place on this topic. II. Section III - AIFMs of open-ended/closed-ended AIF(s) Q2: Do you agree with the proposed definition of AIFMs of open-ended/closed-ended AIFs? If not, do you have any alternative proposal, in particular as regards the relevant frequency of redemptions for the open-ended funds? We agree with the proposed definition of AIFMs of open-ended/closed-ended AIFs and have no comments to provide on this topic. PE funds are typically structured as 10 year-plus, closed-ended, limited partnerships (or similar legal structures). The investors make a legally-binding commitment at the start of the life of the fund to invest a certain amount of money. They enter into a fund commitment in the full expectation of remaining committed for the entire duration of the fund s life. Moreover, PE funds are typically structured so investors have no right of redemption before the end of the fund s life Recital 78 of Directive 2011/61 states: In particular for private equity and venture capital funds this means that leverage that exists at the level of a portfolio company is not intended to be included when referring to such financial or legal structures. Cf. also Article 3 2)b) of Directive 2011/61/EU. 3

4 Q3: Please provide qualitative and quantitative data on the costs and benefits that the proposed definition of AIFMs of open-ended/closed-ended AIFs would imply. Q4: Do you consider that any possibility to redeem the AIF s units/shares on the secondary market and not directly from the AIF should be taken into consideration when assessing whether AIFM is an AIFM of open-ended or closed-ended AIF(s)? Or do you consider that, as within the UCITS framework, only any action taken by an AIFM to ensure that the stock exchange value of the units of the AIF it manages does not significantly vary from their net asset value should be regarded as equivalent to granting to unitholders/shareholders the right to redeem their units or shares out of the assets of this AIF? We are strongly of the view that an AIF is only open-ended where investors have the right to redeem, at their own election and on a reasonably frequent basis, the units or shares in the AIF out of the assets of the AIF. As such we would not see any circumstances in which trading of units or shares on a secondary market could be seen as affecting the question of whether or not the AIF is open or closed-ended. We are of the view that the draft Regulation is already appropriately drafted in this regard. Q5: Do you agree with the proposed approach as regards the treatment of hybrid structures? If not, please explain why and, if possible, provide alternative proposals. III. Section IV - Other criteria to determine the application of the AIFMD to certain types of AIFMs Q6: Do you see merit in clarifying further the notion of contracts with prime brokers and/or the notion of internally or externally managed? If so, please provide suggestions. In particular, if your answer is yes for the notion of internally or externally managed, please indicate which of the criteria already in recital (20) of the AIFMD need additional clarifications. Q7: Do you consider that there is a need to develop further typologies of AIFMs where relevant in the application of the AIFMD? If yes, please provide details on the additional typologies sought. 4

5 About the PAE The Public Affairs Executive (PAE) consists of representatives from the venture capital, midmarket and large buyout parts of the private equity industry, as well as institutional investors and representatives of national private equity associations (NVCAs). The PAE represents the views of this industry in EU-level public affairs and aims to improve the understanding of its activities and its importance for the European economy. About EVCA The EVCA is the voice of European private equity and venture capital. We promote the interests of our more than 1,200 members, to ensure they can conduct their business effectively. The EVCA engages policymakers and promotes the industry among key stakeholders, including institutional investors, entrepreneurs and employee representatives. The EVCA develops professional standards, prepares research reports and holds professional training and networking events. The EVCA covers the whole range of private equity, from early-stage venture capital to the largest buyouts and the investors which invest in such funds. 5