MEPs warned against directive which will 'strangle investment'

BUSINESS leaders will today urge MEPs to vote against parts of a new European Commission directive which the CBI claims will force firms to disclose commercial secrets.

Critics believe that the alternative investment fund managers (AIFM) directive, which was published last month, will discourage investment by private equity companies.

The directive would increase costs and bureaucracy and would change the relationship between employees and firms that are owned by private equity investors, the CBI claimed.

News of the CBI's opposition to the directive comes just a day after the British Venture Capital Association (BVCA) told Scotland on Sunday that the AIFM measures could "strangle" investment in new firms.

Meanwhile, a letter to MEPs signed by nearly 700 companies across Europe will today warn of the dangers of the AIFM directive, while trade body BusinesseEurope has expressed similar concerns.

CBI deputy director-general John Cridland said: "The proposed legislation would damage companies owned by private equity firms, and discourage investment. We are particularly concerned about the impact it would have on small and medium-sized companies.

"The additional bureaucracy and forced disclosure of commercially-sensitive information would be a real problem, and impede companies that should be encouraged in order to foster economic recovery."

The CBI said the proposed rules would mean that relations between employers and employees in companies owned by private equity firms would, to an extent, be replaced by relations between employees and the private equity firm.

This would put private-equity owned firms at a disadvantage, discouraging investment, the trade body said, and would hit medium-sized firms that employ as few as 50 staff.

Private equity offers firms an important source of capital, which is particularly important when bank lending is relatively constrained, the CBI added.

The European Commission drafted the directive to regulate a range of different funds – including hedge, private equity, commodity, property and infrastructure – as part of its response to the banking crisis and the ensuing continent-wide economic slowdown.

AIFM players looked after 2 trillion (1.7tn) of assets under management in 2008.

In Scotland on Sunday, the BVCA attacked the proposed directive for lumbering businesses with "crippling" disclosure requirements. It claimed the directive would cost companies more than 25,000 a year to meet the new regulations.

But the association praised the European Commission for reviewing two other directives – with a view to making it simpler for medium-sized firms to list on stock exchanges.