The European Commission has published a proposal for a European regulation that will amend the European Venture Capital and Social Entrepreneurship Funds Regulations. The Commission’s aim is to boost investment in small and medium sized innovative companies. It hopes to achieve this by making it easier and cheaper for European fund managers to establish and market venture capital and social entrepreneurship funds, and by expanding the range of companies these funds can invest in.
The Commission’s proposal has been submitted to the Parliament and Council for adoption under the co-decision procedure.
The European Venture Capital Funds Regulation allows EU-domiciled “sub-threshold” alternative investment fund managers (AIFMs) to register with the competent authorities of their home member state, and then market interests in their EU-domiciled qualifying venture capital funds across the EU, to professional investors, opt-in professional investors, and (in this case only) retail investors that are prepared to invest at least €100,000 in the fund.
The European Entrepreneurship Funds Regulation makes similar provisions for EU-domiciled “sub-threshold” AIFMs of qualifying social entrepreneur funds.
This is the only way in which a sub-threshold AIFM can get access to a passport that will enable it to market a small fund across the EEA – but these rights have hardly been used. This seems to be because most AIFMs only want to market interests in their funds within their own member state – or perhaps in 1 or 2 others – so the burden of complying with the regulations is disproportionate, when compared to the partial benefit of the passport those managers want. It also appears that the right to use the EuVECA and EuSEF labels, which follows registration, has less cache with fund managers and their investors than the European Union expected.
The Commission’s proposal will (if adopted) address these concerns by:
- removing the “sub-threshold” cap, so that all AIFMs can participate – not just those with no more than €500m of assets under management – “Large managers can provide economies of scale and trusted brands, offering benefits for investors who in turn can invest more for the ultimate benefit of venture capital and social enterprises“;
- expanding the range of eligible assets to allow investments in small mid-caps and SMEs listed on SME growth markets, so that more companies can benefit from investment, and funds can diversify their risks to a greater extent;
- prohibiting member state fees; and
- simplifying the registration process.