As part of the CMU, the European Commission has been reviewing the European social entrepreneurship funds (EuSEF) and European Venture Capital Funds (EuVECA) regulations in order to improve the uptake of these funds. EuSEFs are alternative investment schemes with the aim to have a positive social impact and address social objectives rather than only maximizing profit. EuVECA funds focus on start-ups and early stage companies and are an important source of long-term financing to young and innovative companies.
Essentially, EuSEFs and EUVECAs must be EU domiciled and managed by an EU-based alternative investment fund manager (AIFM) and invest 70% in qualifying portfolio undertakings. These may be EU based or established in third countries, subject to certain criteria. The investment should only be in equity or quasi-equity instruments of the portfolio company (i.e. no debt instruments) and the fund should not use borrowings or any form of leverage. These funds can then be marketed under an EU wide passport to professional and, importantly, also to certain non-professional investors, such as high net worth individuals.
The EuVECA Regulation and the EuSEF Regulation have recently been amended in order to:
- Allow AIFMs authorised under AIFMD (for example UK full scope AIFMs with assets under management above EUR 500M) to use the “EuVECA” and “EuSEF” designations respectively when marketing those funds in the EU (previously the regimes were only available to sub-threshold AIFMs).
- Expand the range of qualifying investments permitted under the EuVECA Regulation to allow investment in small mid-caps and small and medium-sized enterprises listed on SME growth markets.
- Prohibit competent authorities of host member states from imposing fees and other charges relating to cross-border marketing of EuVECA and EuSEF funds.
The revised rules will enter into force 20 days after being published in the Official Journal of the European Union.