The AMF is carrying out a consultation on the end of life of private equity funds intended for individuals

Opalesque Industry Update – The AMF is conducting a consultation to adapt the regulatory framework for the end of life of private equity funds intended for retail clients, with a view to strengthening investor protection and creating a framework facilitating compliance of the initial liquidation dates of these funds.

The AMF has noted that the announced lifetime of private equity funds intended for retail clients, the compliance of which is the responsibility of the management company, is regularly exceeded by a significant number of funds for various reasons. This results in various impacts for their investors, both from the point of view of the information provided at the outset and during the life of the fund, as well as problems of all kinds caused by excessively long liquidation procedures. This subject has given rise in recent years to a significant flow of complaints to the AMF and referrals to the AMF Mediator by savers. The funds concerned are innovation venture capital funds (FCPI), local investment funds (FIP) and venture capital funds (FCPR) intended for non-professional clients.

The end of life of private equity funds is broken down into three successive stages: pre-liquidation, which is an optional stage allowing preparation of liquidation operations, followed by the termination decision (compulsory stage subject to the prior approval of the AMF), then liquidation.

A working group was set up at the initiative of the AMF Board and chaired by Ms. Muriel Faure, AMF Director, with representatives of the various stakeholders (representatives of savers, private equity investment companies , custodians and audit and legal professionals). It has worked with the support of the AMF departments on various legislative, regulatory and operational proposals intended to improve the protection of savers investing in these products.

The AMF is currently conducting a consultation on the 19 proposals resulting from this working group and contained in the attached report, aimed at responding to the following issues:

• strengthen the regulatory framework for liquidation operations, by clarifying the powers of the fund’s liquidator and, for example, by systematically imposing pre-liquidation, to avoid situations in which portfolio management companies could actually begin their work in order not to sell only their holdings near the date initially planned for the closing of the fund;

• the availability of financial resources allowing the liquidator of the funds to allocate sufficient resources to this important phase, in particular in situations where the original portfolio management company would not be able to carry out these transactions itself liquidation;

• enrichment of information for fund unitholders, both when the fund is created and during the liquidation phase; in particular, asset management companies that have not respected the lifespan of at least 50% of the funds they manage over the last 10 years must insert in the fund documentation a warning concerning the non-compliance by the portfolio management company with the obligations announced on the liquidation dates;

• strengthening AMF monitoring, with the establishment of a specific half-yearly report for the attention of the regulator on the state of liquidation of funds that have exceeded their lifespan;

• a series of measures to remove the obstacles to liquidation that may exist from the design of the funds, and in particular an awareness that the current theoretical maximum duration of 10 years for private equity funds may be unsuited to the value creation cycle in certain economic sectors;

• a set of measures aimed at limiting the occurrence of situations in which the portfolio management company, in its capacity as registrar of the fund’s units, could have lost contact with certain investors and thus find itself unable to pay them the sums due at this time of liquidation;

• creation of a market place mechanism for the liquidation of funds in specific situations.

Some of these proposals are the subject of legislative texts (and will therefore have the status of proposals made by the AMF to the legislator), while others are subject to regulatory provisions under the general regulations or AMF policy, so their application will inevitably take place at different times.

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