Chapter 4 - Legal framework in Europe for equity investors

Abstract

This chapter provides an overview of legal framework in Europe for equity investors; in the European Union (EU), private equity is considered a financial service and is supervised by the appropriate authorities. Because it is supervised, private equity financing is considered safer, more stable, and easier to control than unsupervised financing. The negative impact of supervision is higher costs and specific constraints. This chapter introduces options available for private equity finance throughout Europe. In private equity business, the most relevant non-banking activity is asset management, because it assumes a direct or indirect investment in firms. There are two reference structures used to manage investment in firms: limited partnership funds and AMCs. European legislation requires supervision of financial institutions; as such, control of the responsible managers becomes inevitable. In Europe, the internal code of activity, according to the AMC funds system, is not a contract but an act approved by the supervisor defining the relationship between the AMC and the fund investors. It is a set of managerial rules supervised by authorities to be used during the life of the fund: it is a strong expression of the freedom of an AMC.