Four Imminent Changes to E.U. Data Protection Laws of which Private Fund Managers Should Be Aware

Private fund managers with any nexus to the E.U. should care about European data protection laws for two broad categories of reasons: because such laws may impact compliance policies and procedures and other operations at the management company itself, and because such laws may impact companies in which managers’ funds invest.  The latter point typically applies differently to hedge and private equity fund managers.  For hedge fund managers, data privacy laws can create buying or selling opportunities (in the presence of dramatic violations, analogous to the Target data breach in the U.S.), can offer a proxy for the general corporate governance climate at an investee company and are engendering the creation of a new (albeit limited) industry focused on compliance.  For private equity fund managers, data protection laws will typically raise costs at European portfolio companies, and – the other side of the cost coin – offer opportunities to reduce per unit costs via economies of scale spread over multiple portfolio companies.  This article offers a short but pointed summary of some of the key elements of E.U. data protection law currently in force, and highlights four forthcoming changes that will alter the contours of that law and the way private fund managers interact with it.  For discussions of separate sets of considerations for U.S. managers with E.U. operations, see “What Should Hedge Fund Managers Understand About Transfer Pricing and How to Manage the Related Risks?,” Hedge Fund Law Report, Vol. 6, No. 42 (Nov. 1, 2013) (transfer pricing considerations for U.S. managers with London or E.U. affiliates); “Potential Impact on US Hedge Fund Managers of the Reform of the UK Tax Regime Relating to Partnerships and Limited Liability Partnerships,” Hedge Fund Law Report, Vol. 7, No. 10 (Mar. 13, 2014) (U.K. tax considerations for U.S. managers); “Application of the AIFMD to Non-EU Alternative Investment Fund Managers (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 24 (Jun. 13, 2013) (AIFMD considerations for U.S. managers).

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