EU Pension Rules May Trigger Flight From Funds, Buyout Firms Say
European Union proposals to make pension funds bolster their capital may trigger a flight from private-equity firms, the European Private Equity and Venture Capital Association said.
The EU is considering plans to apply capital adequacy rules designed for insurers to pension funds, a move that will penalize investments in private-equity funds because they are illiquid, said the Brussels-based lobby group, which represents about 850 firms including Apax Partners LLP and Cinven Ltd.
Regulators are forcing insurers and banks to put more capital aside for investments considered as risky to avoid a repeat of the 2008 financial crisis. Pension funds, which have accounted for a third of funds raised by European firms since 2006, would follow insurers and lenders in selling private equity assets because those holdings would become too expensive to hold under the new rules, the EVCA said.
The proposal may cause “a flight by pension funds from long-term growth asset classes such as infrastructure and private equity,” the EVCA said in a statement today. “In their efforts to minimize systemic risk, regulators are in danger of negating the stabilizing effect of long-term investors.”
Banks have sold about 20 billion euros ($26 billion) of holdings in private-equity funds in recent years for discounts of as much as 20 percent because of the “exaggerated” risk- weightings applied to the asset class, the EVCA estimated.
Private-equity firms are struggling to raise $733 billion globally as investors wait to get returns from investments made before the financial crisis before committing to new pools, according to London-based research firm Preqin Ltd. The firms raised 46 percent less in the third quarter than in the previous quarter as the European debt crisis deepened, Preqin said.
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