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ECON Venture Funds vote: EVCA voices concern about depositary requirement and missed opportunity to boost SME financing

31 May 2012

The European Private Equity and Venture Capital Association (EVCA) today responds to the European Parliament’s Economic and Monetary Affairs Committee (ECON) vote on its text of the proposed European Venture Capital Fund Regulation (EVCFR).

While the EVCA welcomes the overall Commission’s proposal to facilitate cross border fundraising by VC funds, the EVCA is disappointed about the outcome of today’s vote, which sees the adoption of a depositary requirement.

The EVCA fears that the financial burden imposed by a requirement to appoint a depositary will make it impossible for small, venture capital fund managers to volunteer to enter the EVCFR regime.

The funds will miss out on the benefits of cross-border marketing offered by EVCFR and this will undermine the potential for the regulation to boost venture investing in Europe.

The depositary amendment outweighs the positive impact of the other positive amendments adopted such as improvements in the requirements related to qualifying assets.

“Europe would miss an opportunity to boost SME financing and growth, an area in which Europe is so desperately running behind the curve. However, there is still time, and we hope that the needs of VCs, their investors, and most importantly the companies they support and nurture will be taken into consideration as the legislative process further continues, during the upcoming trialogues”, said Dörte Höppner, the EVCA Secretary General.

The EVCA points that:

• The VC regime is voluntary and aimed at improving access to finance for Europe’s innovative SMEs. As such, as many funds as possible, not as few, should be able to take advantage of this marketing passport.

• The extra cost of a depositary will not serve to protect investors, but will result in:
o discouraging the use of this regulation or
o negating any cost reduction achieved by the marketing passport – to the detriment of European innovation

• The Commission, by not including a depositary requirement in its initial proposal, had adequately recognised the importance of protecting Europe’s venture capital firms from rules designed for financial market traders.

• The AIFM Directive also explicitly exempted small fund managers below €500m from the depositary requirements. The European Commission’s initiative to draft a VC-specific proposal rested on the idea that AIFMD was not suitable for venture capital. Consequently, it does not make any sense to reintroduce the provisions of the AIFM Directive - such as the depositary requirement - which are clearly not adapted to VC funds, in the EVCFR.

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