Data & Intelligence

EMPEA’s Response to HM Treasury’s Proposal

EMPEA welcomes the opportunity to respond to HM Treasury’s Proposal on using Legislative Reform Order to change partnership legislation for private equity investments (July 2015) and submits this response on behalf of its members.

Since EMPEA is an industry association and not itself an investor, we have not attempted to answer all the questions posed. We believe that other associations, including the British Private Equity and Venture Capital Association (the “BVCA”), with whom EMPEA has a close and collegial relationship, may be better placed to answer the questions that we do not address below. However, we do believe that the proposal is positive to the extent it is designed to ensure that the UK limited partnership structure remains internationally competitive. We note that the UK limited partnership is a common structure for UK private funds, and as such is important to fund managers in the UK and elsewhere, including many of our members.

Our members view as positive limited liability structures for investors who provide capital, but do not take an active role in the management of the investment vehicle, and that allow for flow-through taxation. Our members are engaged across emerging markets including in emerging Europe, emerging Asia, Africa, the Middle East and Latin America. EMPEA respects HM Treasury’s mission to gather input on the key issues. EMPEA stands ready to provide whatever further contribution to this work HM’s Treasury might find helpful, including attending meetings and contributing further materials in writing.

In summary, EMPEA strongly supports the proposed reforms and believes that they will ensure the continued commercial viability of English and Scottish limited partnerships as private fund vehicles and, thereby, will improve the competitiveness of the United Kingdom as a jurisdiction of choice for (UK and foreign) private fund managers. In addition, we have reviewed the response prepared by the BVCA. We support and second that response.

Responses 1.

Process for designating private fund limited partnerships (Q1)

We would like to see the introduction of a designation process that is as simple as possible, avoiding unnecessary complexity and burden for private fund managers. With that in mind, we consider that it would be preferable: • not to have to obtain a certificate from a solicitor when requesting designation as a private fund limited partnership as that likely would impose significant additional administrative burden and consequential cost on private fund managers (quite aside from whether it would be possible to obtain such a certificate in all relevant circumstances); and • to be able to request designation as a private fund limited partnership (whether existing or not when the legislative reform order is enacted) at any time so long as the private fund conditions are satisfied when the request is made.

2. White list (Q3, Q4)

We note that unlike in other common fund domiciles (e.g., the State of Delaware, the Cayman Islands, Guernsey, Jersey and Luxembourg), the United Kingdom currently does not have a white list of activities that a limited partner may undertake without jeopardizing its limited liability, and so there is more uncertainty around what activities a limited partner in an English or Scottish limited partnership may undertake relative to the position in other common fund domiciles. A limited partner in a private fund will expect that its liability with respect to such private fund, so far as possible, is limited to the amount of its contractual commitment thereto. Anything that may jeopardize that will be of considerable concern to the limited partner and may result in the limited partner refusing to invest. We welcome very much the inclusion of a white list, and we agree with the activities on the white list. The activities are those that a limited partner in a private fund typically will undertake in monitoring and assessing the private fund. However, we think that the white list should be expressed to be nonexhaustive, so as to avoid any adverse presumption with respect to any activity that is not on the white list.

3. Capital contributions (Q5, Q6, Q7)

A limited partner in a private fund formed as a limited partnership in a common fund domicile other than the United Kingdom will fund its contractual commitment to the private fund by way of capital contributions over the life of the private fund as and when required by the private fund. It is only where a private fund is formed as an English or Scottish limited partnership that (i) a limited partner, without exception, must make a capital contribution on the date of its admission to the private fund and (ii) a limited partner’s contractual commitment to the private fund will be funded partly by way of interestfree advances. Accordingly, we agree with the proposed changes as they will bring UK limited partnership law into line with limited partnership law in other common fund domiciles. That will minimize the need to structure a private fund formed as an English or Scottish limited partnership any differently to how a private fund formed in any other common fund domicile is structured, which may make it easier to market a private fund formed as an English or Scottish limited partnership to investors.

4. Registration and notice requirements (Q9, Q10, Q11)

We agree with the proposed removal of the requirements (i) to register the amount of capital, the general nature of the limited partnership’s business and the term of the limited partnership and (ii) to advertise a notice of certain changes in the Gazette. The proposed changes will reduce the administrative burden on private fund managers, which burden we believe is not justified given the limited benefit that is derived by partners and third parties from compliance with those requirements.

EMPEA has served as a useful reference platform for CDPQ by helping to define the eligible universe of fund managers in growth markets. Membership provides background data and a...

Rashad Kaldany | Executive Vice-President and Growth Markets, CDPQ

The developed markets have no equivalent to the role EMPEA is playing as a convener and source of trusted information in the emerging markets.

David Rubenstein | Co-Founder and Managing Director, The Carlyle Group