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EU moves on plans to enable mutual funds to invest in social enterprise venture funds

Draft text will now go into discussion between European Parliament and Member States.

The European Union has taken a step forward in allowing European mutual funds to invest up to 10% of their assets in newly labelled EuSEF social entrepreneurship venture capital funds with the adoption of a draft text by its Economic and Monetary Affairs Committee (EMAC). The aims of the adopted text, drafted by Sophie Auconie, a French MEP and Philippe Lamberts, a Belgian MEP (Member of the European Parliament), include enabling mainstream investment funds to place money in social entrepreneurship funds, which invest in social enterprises that focus on social benefits over profits for owners and shareholders. The EU says such companies currently comprise up to 10% of EU firms and employ around 11 million people. Under the proposed new rules, MEPs on EMAC voted by a large majority to allow investments in social enterprise funds by UCITS registered funds (Undertakings for Collective Investment in Transferable Securities), which are retail funds with a pan-European sales licence. Under the proposed rule, which will now be discussed by the European Parliament with EU Member States, UCITS funds would be able to invest up to 10% of their assets in social entrepreneurship funds. These EuSEF labeled funds (European Social EntrepreneurshipFund) would in turn be obliged to invest up to 70% of their assets in social businesses. The thrust of the proposed EuSEF structure is to increase investment in innovative start-up social enterprise companies. The EU says venture capital for such firms is severely underdeveloped compared to the US. The latest amendments to the text, however, stipulate that neither venture capital funds nor their beneficiaries should be established in tax havens.

“The EU has a responsibility to support this movement”

They also aim to oblige investors to take a long-term view by returning assets to investors only after the liquidation of the fund. To increase the likelihood that funds will go to small and medium-sized enterprises, the committee text also prohibits fund managers from investing in the products of financial service companies. Auconie said: “Social investment and entrepreneurship are in full development and the EU has a responsibility to support this movement through an investment mechanism which is safe and attractive.”