EMPEA Guidelines – 5
5. Non-discriminatory treatment of cross-border investment
Flows of private equity capital are often international in nature, due to the pooled structure of most vehicles and the need to accommodate investors from multiple jurisdictions. Environments attracting robust private equity investment are therefore minimally discriminatory in terms of:
- Foreign ownership of assets (i.e., only as necessary to protect legitimate national interests);
- Investments abroad by domestic investors; and,
- Fundraising and promotion by foreign private equity managers to institutional and other sophisticated investors within the country.
Additionally, such regimes allow for currency convertibility at market-based or dependably managed rates of exchange and movements of currency in and out of the country, and provide for a fair and flexible means of allowing foreign expertise to operate locally.
Continue to 6. Efficient, transparent and fair regulatory environment
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5.1 – Minimal restrictions on cross-border investment
EMPEA’s primary concern for cross-border investment is to allow investors to determine the efficient allocation of capital without undue legal or regulatory restraints. While many aspects of that concern are reflected in the other Guidelines, this Guideline concerns cross-border investment, including restrictions on foreign ownership, restrictions on investments abroad, fundraising restrictions, currency convertibility (which includes the ability to freely repatriate funds) and the ability of a foreign investor to operate freely in another country.
5.2 – Minimal restrictions on foreign ownership of assets
Countries seeking to encourage international and domestic private equity investment should place minimal limitations on foreign ownership of assets, including public companies.
- As a general matter, any restrictions should be clearly defined and limited to majority control of those assets that are reasonably critical to a country's national security.
- Where requirements for the disclosure of information by foreign investors are reasonably warranted for a country’s national security, such requirements should be transparent and clear to foreign investors.
- Investment treaty obligations should have the force of law and be applicable to all government departments in a country. Where applicable, countries should comply with agreed conditions in respect of the World Trade Organisation and other international bodies that serve as the framework for the international economy.
5.3 – Minimal restrictions on investments abroad by domestic investors
Countries may opt to restrict investments in private equity due to liquidity concerns or other issues applicable to the private equity industry as a whole, but, with respect to the regulations applicable to sophisticated investors, should not distinguish between private equity asset managers located domestically or abroad. Markets in which private equity is most robust allow sophisticated investors to choose the best managers for their investments regardless of where they are located.
5.4 – Independently managed fundraising and promotion
Private equity managers who have taken appropriate advice and are complying with local law should be permitted to manage their own fundraising, particularly in respect of sophisticated investors.
- In many jurisdictions, a private placement exemption allows for private equity interests to be privately placed without the requirement to register locally or to use a local broker, or there being other onerous restrictions on fundraising.
- In some jurisdictions, hiring a local broker, custodian, depositary or valuation agent creates an additional expense for a private equity fund that is likely to impede the efficient allocation of capital.
5.5 – Currency convertibility
A monetary and fiscal regime optimized for private investment of any kind, including private equity, provides for:
- A transparent and easy framework for the conversion of funds to local currency;
- Unrestricted convertibility of the local currency into foreign currency and the unrestricted repatriation of funds; or,
- If restrictions on convertibility are necessary, an efficient, swift and transparent means of conversion that does not discriminate against foreign investors.
- Rates of exchange should be market-based or transparent and dependably managed so that foreign investors are not at a disadvantage to their local counterparts.
5.6 – Ability of foreign expertise to operate locally
An optimal visa and work permit regime for foreign employees is flexible, transparent and easy to use, and:
- Has minimal restrictions on foreign service providers, such as law firms and accountants, to promote the free exchange of information and expertise;
- Has a common set of statutory protections for foreign and domestic employees that strike a sensible balance between the rights of the employers and employees, including with regard to non-competition and non-solicit arrangements;
- Allows fund sponsors to incentivise their employees through employee stock incentive schemes, stock option plans, carried interest plans and similar arrangements;
- Allows foreigners holding work permits to maintain their visas when switching employers through a streamlined, simplified visa transfer process; and,
- Provides for the issuance of landing visas for business travelers on arrival.
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