Shortly before the year closed the European Parliament and Council reached an agreement that creates a pan-EU marketing and regulatory regime for venture capital funds.
Expected to come into force 22 July 2013, the same day as the Alternative Investment Fund Managers Directive (AIFM), the voluntary regime covers managers whose total assets under management do not exceed €500 million. Reasons for opting into the light touch regulation include investor comfort and access to a pan-EU marketing passport.
The regime’s obligations consist of various reporting and disclosure requirements – including details on service providers, investment techniques, and pricing methodology – which some in the industry are criticising as unduly detailed and inappropriate for venture capital funds. However the final bill includes some relief for venture capital firms by removing a depository provision that was included in earlier drafts.
In a previous statement the European Private Equity and Venture Capital Association’s (EVCA) secretary general Dörte Höppner said she was “pleased that legislators have recognised the need to protect venture capital from burdensome requirements such as a depository, which were in fact designed for financial market traders”.
Non-EU funds also received a break, albeit a very small one, as the regulation's review period has been cut from four years to two. As it stands only funds established in the EU can benefit from the regulation’s marketing passport initially but EVCA hope this can be expanded after the initial review period.
In order to benefit from the marketing passport, qualifying managers must not use leverage at the fund level and invest at least 70 percent of their capital into “qualified investments” – investments in European small to medium sized businesses. Under the rules there is no limitation on what the remaining 30 percent of capital can be used for, meaning managers of small-cap leveraged buyout funds may at some capacity be able to benefit from the regime.