The Amended EuVECA And EuSEF Regulations

Regulation (EU) 2017/1991 amending regulations (EU) No 345/2013 on European Venture Capital Funds (EuVECAs) and (EU) No 346/2013 on European Social Entrepreneurship Funds (EuSEFs) (together, the "Regulations") has been published today in the Official Journal of the European Union and will be applicable as of 1 March 2018.

The amendments to the Regulations are a result of the European Commission's review process launched in 2016 which identified a lack of success of the two Regulations, especially that of the EuSEF regulation. Three main obstacles to a widespread use of the labels were identified during such review process: (i) the existence of certain limitations imposed on managers (both in term of size and dual requirements imposed under the regulations and the European alternative investment fund managers' directive (AIFMD)), (ii) the scope of eligible assets and (iii) the amount of costs/regulatory fees. The amending regulation aims at eliminating such obstacles, or at least at reducing their impact. This is achieved through the following main measures:

Fully authorised alternative investment fund managers (AIFMs) will be permitted to manage EuVECAs and EuSEFs as of day one. The previous wording of the Regulations was somewhat unclear and seemed to only permit above-threshold AIFMs to act for EuVECAs and EuSEFs if they had become authorised at some point in time after initial on-boarding of the funds. This clarification now eliminates all uncertainty and clearly provides for the possibility of having fully authorised AIFMs manage EuVECAs and EuSEFs from the outset. The definition of "qualifying portfolio undertaking" for EuVECAs has been broadened. Previously, such definition only covered so-called small and medium-sized enterprises (SMEs), i.e. unlisted companies with fewer than 250 employees, an annual turnover of less than EUR 50 million and an annual balance sheet of less than EUR 43 million. The definition has now been expanded to cover all unlisted companies with up to 499 employees or entities listed on an SME growth market. Furthermore, these criteria need only be met at the time of initial funding, further facilitating follow-on investments. The initial capital and own funds requirements has been harmonised. In the past, each national competent authority had discretion to assess the appropriate level of initial capital and own funds due to an intentional lack of explicit legislative guidance. In practice, this...