EUROPE - The European Private Equity and Venture Capital Association (EVCA) has sent a paper to the European Union calling for a 7.5% maximum limit for pension funds looking to invest in private equity and venture capital.
In a bid to head off what it says is the threat posed by the proposed ‘prudent person plus’ rule, the EVCA has proposed that European pension funds should be limited to investing 7.5% of the scheme in the asset class. This compromise will enable funds to meet their pension promises whilst adhering to prudent person rules, the EVCA said.
According to the EVCA, the proposed rule is a threat to both the European private equity and venture capital industry and the principles agreed by member states in the Risk Capital Action Plan. The group believes that in its current form the rule would lead to severe disturbances in countries that have already adopted a qualitative prudent person principle.
The EVCA is concerned that the ‘prudent person plus’ rule - if applied to all member states - would see arbitrary quantitative limits on investments in specific asset classes. This, the group said, will lead to pension funds reducing or even divesting their private equity and venture capital holdings, preventing the industry’s further development.
To counteract this, the EVCA believe that it would be adequate to adopt regulations that allow member states already operating under prudent person rules to retain their existing legislation. This would prevent a mass exodus from the private equity and venture capital asset classes by European pension funds.
The group has also said that venture capital and private equity should not be placed alongside hedge funds and real estate in the alternative assets bracket - its compromise suggestion states that the 7.5% maximum limit should refer only to private equity.
By Geoffrey Ho
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