EVCA's Professional Standards Committee and EVCA's Private Equity Fund Risk Measurement Guidelines Working Group has launched a consultation on a proposed set of Private Equity Fund Risk Measurement Guidelines.
You are invited to submit your views through this consultation document. The deadline for submissions is 30 June 2011. You may submit comments to RMGconsultation@evca.eu.
As the necessity to measure and quantify private equity related risks increases, particularly with the advent of new risk-based capital adequacy regimes, EVCA members would benefit from extra guidance.
Please ensure you include: your name, job title, company, and your type of activity (eg: GP, LP, placement agent, financial adviser etc). Also please specify the exact part of the document to which your comments relate.
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The Private Equity Fund Risk Measurement Guidelines deal with two important topics for the industry:
Main concerns on Regulatory Treatment
Regulators don’t seem to differentiate between private equity fund commitments by LPs and investments in underlying companies by GPs. What’s the industry’s position on this?
Regulation is based on the concept of market risk – how can you deal with market risk for illiquid assets for which no efficient market exists?
Regulators implicitly force a “fire sale” perspective: they ask “what would I get if I sold the asset today?”
Based on the discussions around Basel II, regulators could take a credit risk view on funds, i.e. to require that for each fund a Probability of Default/Loss Given Default is to be calculated and the expected losses are then aggregated without reflecting the upside of the portfolio of funds.
Regulators put up stringent requirements regarding validation and verification of models: