A change in UK legislation means the majority of private equity firms structured as limited partnerships become exempt from the 20-partner limit on March 22 this year. The change will apply to limited partnership collective investment schemes.
The law restricting the number of partners in a business has been in place since 1907, with professions such as lawyers and accountants already exempt. In the past it has been possible to structure funds to get round the law, for example using different structures or setting up separate partnerships, but this is inconvenient. According to law firm SJ Berwin, which does a lot of fund formation work, the change is not sufficient to cover all investment funds but a large number will take immediate advantage. Only partnerships authorised by the Financial Services and Market Act 2000 will qualify, so partnerships managed from abroad will not be affected at this point.
Melanie Johnson, the UK Minister for Markets, said the law was putting UK businesses at a disadvantage internationally and preventing firms from expanding. “We want the UK to remain at the heart of investment activity in Europe and we have taken quick and decisive action to remove this unnecessary regulation and bring real benefits to the city,” she added. Jennifer English, executive director of the British Venture Capital Association, said: “We heartily welcome this step forward, which is more evidence that the government regards our asset class seriously, and quite rightly so given the economic contribution it makes.”
The government first announced it would change the law in November last year, as part of a move against out-dated and over-burdensome legislation. The draft of this change will be presented to parliament later this year, but the exemption for private equity firms was negotiated in advance of this by SJ Berwin and the Department of Trade and Industry. SJ Berwin, which describes the limit as a nuisance for UK investment funds, has been lobbying the government together with the BVCA for this exemption since the 1980s. Jonathan Blake, head of the firm’s private equity group, has been lobbying for ten years. He said: “Other countries don’t have the 20-partner limit and it has become clear that it was unnecessary.”
Last year the Myners Review on Institutional Investment recommended a significant increase in the number of partners allowed in limited partnerships. It noted: “The current legal restriction serves only to raise business costs without in practice adhering to the historical rationale for a 20 partner limit.” English believes simplification of the private equity industry and increased transparency will encourage institutional investor groups such as pension funds and insurance companies to invest in the asset class.