New rules to hurt SA private equity

2010-05-27 10:36

Cape Town - South Africa's private equity funds could be hit by the European Union's new guidelines governing alternative investment managers.

JP Fourie, CEO of the South African Venture Capital Association (Savca), said the association was deeply concerned over the consequences of the new rules on South African private equity funds.

Private equity funds that invest in unlisted companies are regarded as an alternative asset class for investors.
The guidelines for governing alternative investment managers will ensure that private equity funds outside Europe cannot raise money there. The guidelines are also aimed at hedge funds.

According to Fourie, Savca on Monday met National Treasury to persuade government to have the issue discussed at the June G20 summit.
Sarah Alexander, president of the Emerging Markets Private Equity Association, recently also said at a local conference that the envisaged legislation would have a "very negative" impact on private equity in emerging markets.

The guidelines will make it difficult for an emerging market fund manager to access capital in Europe without significant additional expense and an administrative burden, she explained.

Fourie said that it also meant that European investors would not find it easy to invest in South African private equity funds.
They would not be able to give money to a fund that was not regulated in terms of the EU standards, he said.

Fourie noted that many of the institutions that gave money to private equity funds in South Africa were European government development finance organisations. They made these investments specifically because the private equity funds in turn invested in companies working towards development objectives. This funding would now dry up and backers could no longer invest in Africa and other developing countries.

Last year the EU announced the draft guidelines to regulate alternative investment managers, which were designed to avoid systemic risk and protect investors through greater transparency and other measures.


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