A practical approach to regulation
The swathe of transparency disclosures required by new and upcoming regulation has been putting pressure on private equity firms. However, PE managers can work with pragmatic and knowledgeable law firms to understand exactly how the rules apply to their particular situation and consider whether there is a basis for limiting disclosure about their business and their investors.
Andrew Knight (pictured), Managing Partner, Harneys Luxembourg explains: “There’s an ever increasing degree of transparency being demanded and there are all the regulatory processes and associated cost that go with that. We’ve been closely involved with the common reporting standard and Fatca disclosure regimes. Through our experience with that we can help clients when it comes to assessing new disclosure requirements like the EU’s latest mandatory disclosure regime known as DAC 6.
“The key thing is that clients should not necessarily take the lowest common denominator and the most prudent approach to disclosures. Yes, you’ve got to be compliant but it’s not a question of disclosing everything in the face of this massive pressure. What we try and do is combine a technical approach on the rules so as to determine exactly what those rules require and then apply them accordingly, with a practical approach.”
Knight explains clients need to account for the risks they face if taking a position which is contrary to the prevailing one. However, applying the rules to clients’ unique situations is the job of law firms like Harneys. “Clients don’t just want to know what the rules say, they want to know how they apply specifically to their situation and whether certain information is really disclosable or whether there is a basis for not disclosing it. We’ll always look for that basis to the benefit of our clients,” says Knight.
Harneys partner Vanessa Molloy elaborates further: “From a commercial point of view, it’s always good to remember that PE managers want to run their structures in a competitive way. So we don’t just present them with the standard product. We need to consider the commerciality of the deal and see where our advice can cut down on running costs. For example, a manager selling to institutional investors may not need a product regulated by the CSSF.
“The structures we recommend ultimately depend on a number of things like whether the GP needs to be offshored, the size of the deal, the running costs etc. So it’s about trying to mesh what the asset manager wants to achieve, with what the investors want to achieve in a cost effective structure. At the end of the day, if the structure is expensive to run, then the managers performance needs to be that much better to overcome the costs of running the structure.”
The Harneys brand is relatively fresh in Luxembourg, having partnered with an existing law firm in April this year, following client demand for an additional presence on the continent.
A key element in the firm’s service is applying their knowledge of other jurisdictions like the Cayman Islands and the British Virgin Islands to Luxembourg structures. “We like to tell our clients that in Cayman this is what the structure is and this is how Luxembourg is the same or different,” outlines Molloy. “This way, we always have a reference point to explain the differences between a structure they already have and what Luxembourg has to offer.”
Knight concludes: “When a client comes into a jurisdiction like Luxembourg from the BVI and Cayman, the regulatory environment can be a significant challenge for them. When having initial conversations with clients, we work out what their requirements are and how they can fit in within the regulatory environment. Often there’s quite a lightly regulated solution for them.”
Head of Investment Funds, Harneys, Luxembourg
Venessa Molloy is the head of our Luxembourg Investment Funds team. With over 18 years of experience, Venessa advises a number of international fund managers, family offices and institutional investors on Luxembourg and BVI domiciled investment funds. Her practice focusses on asset classes including real estate, private equity, hedge, regulatory and compliance aspects of investment funds. Venessa’s expertise extends to negotiating and structuring special purpose vehicles, co-investment vehicles and joint ventures.
Partner, Harneys Luxembourg
Andrew Knight is a partner in our Luxembourg Corporate team. He has over 25 years of experience in managing and structuring corporate and commercial transactions. As well as his work in the area of international corporate tax, which is mainly focussed on structuring investments across Europe and Africa through Luxembourg, Andrew remains active in the managing of a variety of other corporate and commercial transactions.