The European Commission will consult asset managers about the creation of a pan-European venture capital fund-of-funds in a bid to make it easier for the continent’s institutional investors to finance start-ups and early stage companies, as part of wider changes to regulations surrounding venture capital and social entrepreneurship funds.
While 70 EuVECA have been set up, just four EuSEF are registered with the European Securities and Markets Authority (ESMA).
The Commission is expected to publish a call for expression of interest from asset managers in the private sector who might be interested in managing the fund-of-funds as soon as next week. It was also revealed that it has been considering how EU budgetary support might be used to attract capital from Europe’s major institutional investors to support the new structure.
The fund-of-funds announcement is included in proposed amendments to regulations governing European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF), which aim to extend the range of managers who are eligible to market and manage them, expand the range of companies that can be included and decrease the costs associated with either investment vehicle.
EuVECA and EuSEF funds were first introduced in 2013 as a way to make it easier and more attractive for investors to back unlisted European SMEs, with laws initially in place to allow fund managers to market them to professional and non-professional investors.
Proposals for a fund-of-funds were first outlined by the Commission’s President, Jean-Claude Juncker, in 2014 but were championed by organizations including private equity body Invest Europe (the former European Private Equity & Venture Capital Association), which identified the structure and potential EU funding as a “catalyst” for private sector investment.A spokesperson for Invest Europe said the organization was “very much in favour” of both of the Commission’s new proposals.
Following a review of the EuVECA and EuSEF that started in September 2015, the Commission has now proposed that larger fund managers with more than €500m of managed assets be allowed to market and manage them in order to scale up potential investment. The range of assets eligible for inclusion has also been extended to allow investment in small mid-cap firms and SMEs listed in growth markets.
The Commission also proposes to explicitly prohibit fees imposed by financial authorities in member states in a bid to simplify the registration process and determine the minimum capital needed to be an approved manager.
The Commission added that the reforms form part of its ongoing Capital Markets Union (CMU) Action Plan in the name of increasing and diversifying funding sources for Europe’s businesses.
Flavia Micilotta, Executive Director of Eurosif, said that her organization welcomed the news of the proposed changes after campaigning for several ways of boosting demand of EuVECA and EuSEF funds, most recently through tax incentives. She added: “We hope the new measures proposed by the European Commission will concretely support the success of these investment tools by making them more accessible and wider in scope.”
A spokesperson for the European Fund and Asset Management Association (EFAMA) also backed the changes as “a step forward into unlocking important capital and encouraging their shift towards investments in longer term projects and thus meeting one of the key objectives set in the CMU”.
The changes mark the last act carried out by Commissioner Jonathan Hill, who will leave Brussels this week after resigning post-Brexit vote. Link