NCM Attends the BVCA Technical Policy Conference 2024

December 2024

It was a pleasure to attend the Technical Policy Conference – the first year under the new name (previously the Tax, Legal & Regulation Conference). There was an energy to the conference this year, galvanised by the significant political change on both sides of the Atlantic. The change in the United Kingdom had a positive air surrounding it, with significant work evident from the BVCA on shaping and clarifying the government’s new approach to carried interest – a concern at the forefront of General Partners’ minds at the moment.

Carried Interest
For carried interest specifically, there is a new rate of Capital Gains Tax (CGT) from 6 April 2025 of 32% (up from 28%). From 6 April 2026 there will be a new regime with carry being treated under the Income Tax rules, with qualifying carry being eligible for a multiplier of 72.5% which brings the effective carry rate to 34.075%. The conditions for qualifying carry mirror the Income Based Carried Interest (ICBI) rules and now cover employees as well as founders – a significant change for PE houses. Whilst this is seen as broadly a good result, there is an increased compliance burden and the new regime will require more careful planning to ensure that carry is qualifying. Should you wish to have a further high level discussion, please reach out to your NCM contact and, for detailed planning advice, your tax advisor.

Alternative Assets Valuations
The BVCA provided an update on the FCAs investigations into valuation processes in the alternative asset space. This was driven by the Bank of England’s concern that the increase in bank lending to the Private Markets (either through fund facilities or portfolio level lending) was overexposing the banking sector to unquantified risk, leading to a potential systemic shock at the banking level should a localised PE valuation bubble burst. The FCA’s conclusions were that valuations are completed extremely thoroughly in PE and the main risk was under, not overvaluation. Whilst there were no immediate recommendations from the investigation (a first apparently for the FCA), there was some thinking at the BVCA that there may come a recommendation for independent valuation committees in the future – as happens in real estate. It was thought that a reasonable long term planning approach is to separate valuation from the deal team in GP’s governance structures. 

Pensions
In addition to the public sector pension ‘megafunds’ that the government have announced, there is ongoing focus from the BoE, PR and FCA attempting to improve Direct Contribution and Direct Benefit pension access to Private Markets. Initially it appears to be a positive, increasing the available capital for GPs. Pension funds have a higher focus on fees and are negotiating away from 2/20 structures in some cases – however it is still seen as a net benefit for GPs given pension funds’ steady and regular inflows which GPs can hopefully access more of in the future. 

All together it was a great day and interesting to hear the opinions of many industry specialists given the significant changes that have occurred in the year.