On the 22nd July 2013, the European Parliament enacted Regulation 345/2013 and 346/2013 which laid down uniform requirements and conditions for managers of European Venture Capital Funds (EuVECAs) and European Social Entrepreneurship Funds (EuSEFs). EuVECAs and EuSEFs are essentially harmonised collective investment schemes intended to facilitate the supply of capital to innovative small and medium-sized enterprises (SMEs) and social undertakings across the European Union (EU).
When compared to other EU harmonised investment funds, EuVECAs and EuSEFs are generally subject to less onerous supervisory provisions, in addition to there being no obligation to publish a prospectus, no requirement of a depositary, no set rules for the valuation of assets and the possibility to market units to non-professional investors.
Despite these regulatory advantages, a relatively low take-up of these funds has been observed, with only 70 EuVECA and 4 EuSEF being notified to the European Securities and Markets Authority (ESMA) since the enactment of the Regulations in 2013.
An impact assessment carried out by the European Commission has identified regulatory constraints on authorised AIFMs, product rules and dissimilar regulatory fees imposed by Member States as three potential obstacles to further growth in this space. This led the Commission to put forward a number of proposals which are now making their way through the European parliamentary process. In particular, the Commission proposed to:
- Amend the current definition of ‘qualifying portfolio undertaking’ such that EuVECAs would be able to invest in undertakings that employ up to 499 people and SMEs that are listed on growth markets with a market capitalisation not exceeding 200 million euro;
- Allow AIFMs managing more than €500m in AUM to use EuVECA and EuSEF designations when marketing such funds in the EU;
- Entrust ESMA to develop draft regulatory standards indicating methodologies to determine sufficient own funds.
These proposals are reflective of the Commission’s ongoing effort to address the sluggish growth that has characterised the EU’s economy for the past couple of years by facilitating the supply of capital to SMEs, hoping in turn, that this would lead to increased economic activity. Bearing the above in mind, however, it remains to be seen whether these proposals will be sufficient to increase the take up of EuVECAs and EuSEFs to a satisfactory level, if indeed they make it through the parliamentary process. In any case, the proposals are certainly encouraging as they are reflective of the Commission’s commitment to develop the Capital Markets Union.