Richard Small’s Post

On 1st March the Financial Conduct Authority published an interim update Dear CEO letter on its Asset Management & Alternatives Supervisory Strategy. The three key takeaways for private funds are: (1) Governance: the FCA's supervisory approach for the next year will continue to focus on firms' governance arrangements. Firms will need to ensure that they have (i) an effective decision-making structure which assigns senior accountability for identified risks, (ii) appropriate management information about the risks the firm faces and (iii) proper oversight by governance bodies. The FCA reiterated governance in relation to ESG (see the next point below); (2) ESG: the FCA's scrutiny will focus in particular on the disclosure and clarity of information being given to retail investors and consumers following the adoption of the Guiding Principles for ESG (available here https://lnkd.in/grYv2dZe). The FCA further noted that later this year firms will be implementing the Sustainability Disclosure Requirements (SDR) and investment labels. Where firms promote their ESG credentials, the FCA will be expecting boards and other governance bodies to be appropriately structured to oversee and review relevant management information, the third-party ESG information providers used, and the claims made by their firms. The FCA has made it clear that it "will be concerned" where firms make exaggerated or misleading sustainability-related claims, including about their investment products; and (3) Valuation practices for private assets: the FCA has again noted the relative lack of transparency in valuation practices for private assets (as compared to publicly traded assets). As such, the FCA have announced that they will be "conducting a multi-firm review examining valuation practices for private assets, including examining the personal accountabilities for valuation practices in firms, governance of valuation committees, the information reported to boards about valuations and the oversight by relevant boards of those practices." The key regulatory message emerging for 2024 is that GPs and private fund managers should be reviewing their governance arrangements, taking care in their implementation of SDR and making sure that their valuation practices have been reviewed and meet the FCA's expectations. Don't hesitate to contact Richard Small, Jan Grüter, Ben Cocoracchio, Marine Pouzoulet or your usual Addleshaw Goddard contact in the Private Funds Group if you'd like to discuss any aspect of this Dear CEO letter.   #privatefunds #allfundsnogames #privateequity https://lnkd.in/grYv2dZe

The Financial Conduct Authority has just published a very helpful guide to sustainability disclosure and labelling regime. Required reading for asset managers - especially given some of the tight timelines. The anti-greenwashing rule comes into force in few months on 31 May 2024! Please do reach out to Richard Small, Jan Grüter, Ben Cocoracchio, Jagdip Gujral or your usual Addleshaw Goddard contact in the Private Funds Teams if you'd like to discuss any aspects of this new regime. #esg #privatefunds #readysteadygrow #privateequityfirms #privateequity

Delighted to have had the opportunity to participate in such an interesting roundtable on #sdr hosted by Optima Partners - thank you again Hap Oakley and Will Emtage for inviting Jagdip Gujral and me to present on non-labelled funds and greenwashing. The room was very much engaged on the anti-greenwashing rule which comes into force on 31 May 2024. The Financial Conduct Authority's guidance on the rule (available here: https://lnkd.in/g4nTC8AV) is certainly required reading! The two key takeaways were the FCA's requirement that sustainability related statements must be: - complete in the context of the lifecycle of the product, important information should not be hidden or omitted - but what exactly does that mean? A one page advert followed by three pages of disclaimers along the lines of US pharmaceutical ads - surely not; and - correct and capable of being substantiated. Firms will need to be prepared to back up any claims made in their communications / marketing materials / PPMs. Appropriate policies and procedures and systems and controls need to be put in place to ensure that all materials are properly vetted before they are released and adequate audit trail is kept. The prospect of the FCA using screening software and employing AI to scan marketing materials to check for compliance with the anti-greenwashing rules was noted! Do reach out to Richard Small, Jagdip Gujral, Jan Grüter, Ben Cocoracchio or your usual Addleshaw Goddard Private Funds Team contact if you'd like to discuss any of the above. #esg #privatefunds #privateequity #readysteadygrow

From 31st January 2024, the criteria for qualifying as a "high net worth individual" under article 48 and a "self-certified sophisticated investor" under article 50a of the FSMA 2000 (Financial Promotions) Order 2005 will be changing. These changes to the FCA Handbook implement HM Treasury's November 2023 Consultation Response on Financial promotion exemptions for high net worth individual and sophisticated investors, available here: https://lnkd.in/gZNzhyiW. The new thresholds for classifying as a high net worth individual will increase as follows: - the previous financial year's annual income requirement will increase from the present £100,000 to £170,000; and - the net assets required to be held throughout the previous financial year will increase from £250,000 to £430,000 or more. The criteria for qualifying as a self-certified sophisticated investor are also changing: - the exemption for investors who have made one investment in an unlisted company in the two years prior to the date of the statement will no longer be available; and - the exemption for company directors will be amended – the company's minimum annual turnover will now be £1.6 million, up from £1 million at present.  The revised form of statements for certified high net worth individuals and self-certified sophisticated investors should become available via the FCA Handbook at COBS 4 Annex 2 and 3 respectively on 31 January 2024. The amendments to the FCA Handbook can be found here: https://lnkd.in/gkm7q4HC Don't hesitate to contact Richard Small, Jan Grüter, Ben Cocoracchio or your usual Addleshaw Goddard contact in the Private Funds Group if you'd like to discuss any aspect of these amendments. #readysteadygrow #privateequity #privatefunds

Congratulations Team YFM Equity Partners! Beating expectations and delivering an early Christmas for PE fund raising.

AIFMD II: What private fund managers need to know The final text of AIFMD II has been published. A copy of the text can be found here: https://lnkd.in/gx-WN9gc. Assuming that the text is approved and published in the Official Journal without undue delay, we would expect AIFMD II to likely come into force across the Member States in 2026. In this briefing, we take a look at the main changes from 39,000ft, with a particular focus on: • the new regime for loan originating AIFs; • the additional reporting and disclosure requirements for AIFMs; • the amended delegation and substance requirements; • the new rules for the fair treatment of investors and undue costs; and • the conflicts of interest provision. Whilst not directly applicable to UK based private fund managers, AIFMD II will have a material indirect impact on those who raise capital in the EU and/or are party to delegation arrangements. Required reading for private fund / private equity managers! Don't hesitate to contact Richard Small, Jan Grüter, Ben Cocoracchio or your usual Addleshaw Goddard contact in the Private Funds Group if you'd like to discuss any aspect of AIFMD II. #privatefunds #readysteadygrow #privateequity #privateequityfirms

Delighted to have attended the 2023 British Private Equity & Venture Capital Association (BVCA) Tax, Legal & Regulatory Conference today with Mike Hinchliffe and Jan Grüter. Some fantastic practical insights into a number of legal and regulatory developments that the private equity and private funds industry is facing: • the National Security & Investments Act - given the large number notifications compared with the US and Germany some clarifications to the regime are expected; • the U.S. Securities and Exchange Commission’s new Private Funds Adviser Rules (PFAR) - the impact of the mandatory disclosure of preferential treatment on fund raising was identified as the key challenge; • AIFMD II and its impact on loan origination funds - industry focus is on document hygiene particularly credit-granting policies and procedures; and • the latest developments in the UK and US sustainability regulations - the Financial Conduct Authority’s SDR policy statement is due any day now - the FCA have confirmed that it would be published in Q4 and won’t come on Christmas Eve! Given the volume of feedback the FCA has received (around 240 responses), we can expect some material changes from the consultation paper. Do let Richard Small, Mike Hinchliffe, Jan Grüter or Al Mangan (for NSIA queries) know if you’d like to discuss any of these developments. #privatefunds #readysteadygrow #privateequity #privateequityfirms

Private market valuations / New FCA rules in the offing   On October 4th, Nikhil Rathi, the Financial Conduct Authority's CEO stated that the FCA will be launching a review into private markets as part of a joint evaluation with other international regulators to determine risks to financial stability. The FCA is anticipating that an adjustment in private market valuations will take place in the higher interest rate environment.   The review will likely seeking to understand where risk might have built up and how valuations are governed. There is concern that unlike in public markets where there are consistent information disclosure requirements, there is an inconsistency in the available information in private markets often resulting in a material time lag before valuations become available to investors. Rathi made specific reference to the current issues in China in relation to commercial real estate.   The FCA's review is part of a broader global trend. In August, the U.S. Securities and Exchange Commission introduced new rules (see here: https://lnkd.in/eA4FDYg4) for private fund advisers that, amongst other things, "will require private fund advisers registered with the Commission to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance."   In our view, the FCA’s review could accelerate the trend to independent valuations with greater integrity and oversight (i.e., managers would no longer be able to mark their own homework) and more frequent valuations (i.e., monthly rather than quarterly or annually) to reduce the lagging effect. In the meantime, private fund managers may want to consider how they currently conduct valuations. Some of the questions to ask are: is a documented valuation process; who undertakes the valuations (and is it walled off from the investment team); is it subject to independent oversight; is a documented audit trail kept of the evidence used to come to a valuation; and is there a process in place to identify events that could have a material impact on valuations. Please do not hesitate to reach out to any of Richard Small, Jan Grüter, Ben Cocoracchio or you usual AG contact if you'd like to discuss this or any other Private Funds development. #readysteadygrow #privatefunds #privateequity #privateequityfirms

Updating and improving the UK regime for asset management: the FCA's priorities At The Investment Association annual dinner last night, Ashley Alder, the Chair of the Financial Conduct Authority outlined the FCA's plans to reform the UK asset management regime for alternative funds, aiming to make it more proportionate, flexible and tailored to the UK market. The speech also outlined the FCA's plans for updating the regime for retail funds, support for technological innovation and ways to mobilise domestic savings to fund productive investment in the UK. Some of the key proposals in relation to alternative funds include: • applying a consistent set of rules across all managers of alternative funds, regardless of their size, but with proportionate adjustments depending on the nature and scale of their business; • allowing full-scope alternative fund managers to carry out other activities within the same legal entity, reducing the complexity and cost of having separate entities; and • reviewing the reporting requirements for alternative fund managers, especially those related to fund establishment, material changes, major holdings and control of non-listed companies, to ensure they are not overly burdensome and deliver value for regulators and investors. These changes could have significant implications for the UK alternative fund industry, as well as for the competitiveness and attractiveness of the UK as a location for fund domicile. The FCA is working with HM Treasury to explore how to implement these reforms - with a further consultation on changes to the UK AIFMD regime expected in 2024.   The Addleshaw Goddard Private Funds team continues to advise private fund managers on the forthcoming changes to AIFMD II in Europe and ongoing changes to the asset management regime in the UK as the FCA continues to reshape its domestic rulebook - please contact Richard Small, Jan Grüter, Ben Cocoracchio, Christopher Walker or your regular AG contact for more information #readysteadygrow #privateequity #privateequityfirms #privatefunds