In our August 2016 e-zine, we reported on a European Commission ("Commission") initiative to boost the numbers of venture capital and social impact funds by amending the original 2013 European Venture Capital Funds ("EuVECA") and European Social Entrepreneurship Funds ("EuSEF") Regulations. One of the proposed amendments related to the existing requirements that the fund manager have "sufficient own funds". Currently, the different member states have imposed their own standards of "own fund" requirements ranging from €6,500 to €125,000, the upper threshold being in line with the full capital requirements for AIFMD authorised managers, thus creating a lack of consistency for manager capital requirements across member states.
The Commission's original proposal to amend the EuVECA and EuSEF Regulations (July 2016) required the European Securities Markets Authority ("ESMA") to draft regulatory standards to determine what constitutes "sufficient own funds". Since this initial amendment proposal, two compromise texts have been published by the Presidency of the EU Council. The second of these, dated 11 October 2016, sets out minimum capital and additional own funds requirements for managers (rather than leaving it to ESMA to produce regulatory standards). Although the drafting is somewhat unclear, the proposal appears as follows:
- All managers must have an initial capital of €20,000.
- Where the value of the qualifying funds under management exceeds €100m, the manger must have additional own funds of 0.02% of that excess (subject to a minimum additional own fund level, where applicable, equal to 1/8 of the preceding year's fixed overheads (or projected overheads for a new manager)). Up to 50% of the additional own capital requirement may be satisfied by a guarantee form a credit institution or insurance undertaking.
- All managers must have additional own funds to cover professional negligence liability claims of at least 0.01 of the value of the qualifying portfolios under management managed or have professional indemnity liability insurance in place (0.07 of the value of the portfolios to cover an individual claim and 0.09% of the value for aggregate claims).
For further information on the proposed amendments to the EuVECA and EUSEF Regulations, please see our previous article here