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Private Equity Attacks Insurance Regulation in Europe

Posted on 19 Jan 2010

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The private equity industry has voiced fears that planned European reforms will drive insurers away from investing in the sector, despite receiving a boost last week when German insurer Allianz SE revealed it may double its investment in alternatives assets.

Fears over the changes persist even though Allianz's finance director Paul Achleitner revealed at a conference in Munich last Friday that he was considering doubling the insurer's investments in alternative assets from about EUR15 billion ($21.6 billion) to EUR30 billion.

Concern has been mounting quietly in the private equity industry since November last year, when the regulator drafting incoming insurance legislation Solvency II, increased the amount of money insurers would need to hold to invest in the asset class.

Peter Laib, a managing director at Swiss fund of funds Adveq, said: "If Solvency II is implemented as it stands at the moment, with little room for exceptions and adjustments, that would be very, very bad [for private equity]."

Under the proposal insurers will be required to hold 60% of funds committed to private equity in cash or cash equivalents, rather than an earlier planned requirement of 45%, which had already sparked concern in private equity circles. The proposal will have a similar effect on hedge fund and other alternative investments.

European Union regulatory body the Committee of European Insurance and Occupational Pensions Supervisors is due to discuss these proposed changes to insurance legislation of private equity investments at its annual meeting next week on January 26 and January 27, according to Pamela Schuermans, an administrator for the committee's secretariat.

Thomas Meyer, director at the European Private Equity and Venture Capital Association, warned that a capital requirement of 60% would hit returns from the asset class.

He said: "For a 60% allocation, returns are not so striking, [meaning] institutions will consider whether they should remain in private equity."

Schuermans said the regulator was considering stakeholders' calls to reduce the capital requirement for private equity to 45% ??? the amount they must set aside for global equity investments.

An Allianz spokesman confirmed Achleiner's comments but could not immediately respond to comment on Allianz's stance on the incoming Solvency II legislation. He pointed out Allianz has a EUR400 billion investment portfolio and said its investment in private equity was worth EUR8 billion, and even if that were doubled to EUR16 billion, it would remain "a small but important" part.