The European Private Equity and Venture Capital Association has questioned the need for further regulation of UK private equity following the publication of the Treasury Select Committee’s interim report, arguing that any changes to the UK regime could have unintended consequences for Europe as a whole.
EVCA’s contribution is notable as one of the few occasions where the pan-European body has waded into a purely national row. It highlights industry concerns that changes to the current system could either undermine the UK’s competitiveness abroad, or else establish a precedent that will eventually be applied to other jurisdictions elsewhere in Europe.
The future of UK private equity is critical to the industry’s success across Europe because the country accounts for such a large proportion of private equity activity in the region – UK deals accounted for almost a third of European volumes last quarter, according to recent figures from Candover’s Unquote Barometer.
EVCA urged particular caution in any further scrutiny of the tax deductibility of interest and the treatment of carried interest – as recommended by the committee. This was important “to avoid disproportionately increasing regulatory complexities or jeopardising wider economic attractiveness and competitiveness”, it said. It cited the recent tax changes in Denmark as an example, which it said would mitigate the loss of just 0.2 percent of the total tax take.
In other European countries, legal systems and regulatory structures were quite different, it added, making it difficult to apply any future recommendations across the continent. This could happen “given the nature of today’s international private equity marketplace”, it said.
The market is quite capable of self-regulation, according to EVCA. The recent tightening in the credit markets, which are showing “more signs of risk aversion” than when the committee first held its hearings, demonstrated that political intervention was not required, it insisted.
EVCA also defended its own work in improving the industry’s transparency in the last 15 years in the light of Sir David Walker’s recent report, pointing out that investors in the asset class now benefited from a number of principles-based guidelines like the Corporate Governance and Codes of Conduct standards.