European Commission’s new EuSEF social fund label comes under attack

Amundi, France’s biggest asset manager of SRI funds, has sharply criticized the European Commission’s framework for European Social Entrepreneurship Funds (EuSEF), the nascent social fund regime, calling it a ‘disaster’ and the result of a ‘fundamental misunderstanding’.

The EuSEF framework was first proposed in 2012 but so far just two funds have been set up, by Germany-based social investor BonVenture and PhiTrust, the French corporate governance activist manager. A third is understood to be in the pipeline from the Portuguese Social Innovation Bank.

Amundi made the remarks in a consultation response to European financial regulator the European Securities and Markets Authority (ESMA) which is providing the European Commission with technical advice on EuSEF regulation.

Amundi starts its consultation response with a damning verdict of EuSEF: “The result of EuSEF regulation is a disaster,” it says, “with only two funds registered. Amundi thinks that there is a fundamental misunderstanding in EuSEF and EuVECA [the venture capital fund regime] regulations.”

It goes on to say that big fund management firms should be allowed to run EuSEFs. The label is only available to fund managers that have less than €500m in assets under management. Speaking to Responsible Investor, Frédéric Bompaire, Head of Public Affairs at Amundi, who wrote the company’s response, said that “as long as EuSEF was limited to smaller investment companies it was bound to not be successful”.

“It has not generated a lot of interest,” he said. “EuSEF is too restrictive and it needs relaxing.”

Despite the fact that it does not manage labelled EuSEFs, Amundi took part in the consultation because it is involved in the management of “fonds solidaires” and is interested in assessing their social impact.In a question on measuring social impact, Amundi says it should not be imposed by regulation and there should not be a requirement for third party criteria. Bompaire said: “We do not want to reproduce the situation where investors are dependent on third parties, such as credit ratings agencies. It is best to take existing methodologies out there such as from the University of Munich.” [Amundi has worked on a new methodology, called SRS, in Germany with a range of players including BonVenture, the Vodafone Foundation Germany, the University of Hamburg and the Technical University of Munich with support from the German government.]

Amundi’s concerns follow similar reservations expressed at a sparsely attended meeting at ESMA’s Paris headquarters last year.

Responding to Amundi’s comments, a European Commission spokeswoman said: “EuSEF and EuVECA are designed to have a regulatory ‘light touch’, which is why they are only available to investors with at least €100,000 to subscribe. The light touch approach is also designed to encourage smaller fund managers to enter the market.” She went on to say the fund regimes “have a role to play” within the Commission’s wider work on capital market union and that if the focus on smaller managers impedes the roll-out of funds then the Commission would consider “whether reviewing the relevant rules is necessary”.

The consultation sought views on a number of issues on what is called “level 2” of EuSEF regulation, including defining who is eligible and impact measurement. ESMA will report back to the Commission by April 30. Fifteen organisations responded to the now-closed consultation, including Amundi, the UK government’s Cabinet Office, the European Venture Philanthropy Association and UK charity the Young Foundation.

EuSEFs fall within the portfolio of Commissioner Jonathan Hill, who has responsibility for Financial Stability, Financial Services and Capital Markets Union.