Commissioner Hill’s swan song is the publication by the European Commission of proposed changes to the Regulations on European Venture Capital Funds (EuVECAs) and European Social Entrepreneurship Funds (EuSEFs). The two fund regimes (which are regulated forms of Alternative Investment Funds) were only introduced in 2013. However, as we noted in our response to the Commission’s Call for Evidence on post-crisis regulation, they are not attractive to either the industry or investors for two main reasons: the narrow investor base and the restriction to smaller fund managers. The proposal addresses the second point and also increases the range of eligible investee companies and prohibits national barriers to cross border marketing of these funds, but it does not widen the eligible investor base. This and other points are likely to emerge during the legislative debates.
The EuVECA and EuSEF Regulations enable smaller fund management companies that are below the AIFMD threshold to market funds cross border with Europe without opting up to the full provisions of the AIFMD. Both the fund and the manager must be domiciled and authorised in the EU, and the Regulations impose certain conditions on the portfolio of the fund (i.e. they are regulated products).
These funds can be marketed across Europe, using the “EuVECA” and “EuSEF” labels, to professional investors and to retail investors who invest a minimum of €100,000 in any one fund and who state in writing that they are aware of the risks associated with the envisaged commitment. A number of respondents to the Call for Evidence said this was too high a threshold, but others said that if it were lowered then additional protections for retail investors would be needed. The European Long-Term Investment Fund (ELTIF) Regulation, which followed in 2015, has a lower minimum investment threshold of €10,000 but requires the manager to ensure that the investment does not exceed 10% of the investor’s financial instrument portfolio. This requirement is operationally difficult to evidence in an intermediated market. Given the conflicting views, the Commission has decided not to propose amendment of the EuVECA and EuSEF €100,000 minimum.
The proposed changes (PDF 120 KB):
The European Parliament and Council legislative debates on the proposal are expected to start in September given the priority of this file under the CMU Action Plan.
The Commission is also considering ways to use EU budgetary support to attract further interest of institutional investors and how this can be achieved via a pan-European venture capital fund-of-funds. It will soon publish a call for interest from asset managers in managing the fund-of-funds.
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