European investors ‘out of reach’ for small US funds

COO of Crystal Financial says many small- to medium-sized US private debt funds are sticking to domestic investors because of AIFMD, reports PDI sister publication Private Funds Management.  

The complexity of regulations, such as the Alternative Fund Managers Directive (AIFMD), are having an impact on the amount of small and medium sized debt funds willing to take on foreign investors, Josh Franklin, chief operating officer at US debt financing firm Crystal Financial told pfm.

 

“Many small to medium sized private equity and private debt funds in the United States don't have the infrastructure or the knowledge base to comply with the regulatory requirements that go along with having European investors (e.g. AIFMD).”

 

Franklin declined to comment specifically on Crystal's own investor base and fundraising plans.

 

US fund managers do not currently have access to the AIFMD marketing passport and can only fundraise in in specific European countries in accordance with each country's National Private Placement Regime. Under these regimes, managers must comply with certain AIFMD requirements and any additional conditions imposed by national law in the investor's home jurisdiction.

 

Taking on European investors subjects funds to a completely new and often complex regime that has to be learnt, said Franklin. And because of the difficulties navigating the various rules that can vary from country to country, many US funds shy away of having anything other than a domestic investor base, he added.

 

Crystal Financial underwrites new secured debt for companies in transition, such as those in distress or spinning out of a parent company. In 2014, the firm extended its services and launched the US-based Crystal Financial SBIC fund, backed by only US investors, to provide secured loans to small and medium sized companies for acquisitions, working capital and growth.

 

The firm has 22 employees and has backed 32 portfolio companies, the majority of which are based in the US, with the exception of two in Canada and one in the UK.