EU fund management regulation may hurt investment, say investment firms

Sixty seven per cent of investment firms would either withdraw from venture and growth investment completely, or reduce their allocations by over 30 per cent if the proposed EU Alternative Investment Fund Managers Directive (AIFMD) is implemented in its current form, according to a survey of the world’s most active institutional investors in venture and growth capital funds.

The survey, conducted by The European Private Equity and Venture Capital Association (EVCA), shows the views and the likely effect of the proposed EU AIFM Directive on investment in European venture capital and innovation from private sector investors like banks, pension funds and insurance companies.

The 28 institutional investors who responded to the survey represent an estimated €560 billion under management and over €14 billion committed to venture and growth capital in recent years. Of these 52 per cent anticipated investing in venture at the same level should there be no changes in current regulation, while nearly 8 per cent expected to increase their allocation if there are no changes.

The survey was released in advance of a timetabled debate on the AIFM Directive at the ECOFIN meeting of EU finance ministers on Tuesday. In the event the item was removed from the agenda at the request of the UK Prime Minister Gordon Brown and will now be discussed next month.  

ECVA says the survey findings are important because over 90 per cent of European venture capital is invested in small to medium sized enterprises. The 28 institutional investors who responded to the survey financed an estimated 2,200 European companies in the last five years.  

The survey shows that 85 per cent of respondents find the third country provisions in the AIFM directive, which EVCA says could in practice prevent EU-based venture investors from investing outside of the EU 27, as unacceptable.

Javier Echarri, Secretary General, EVCA, said, “Earlier this month the European Commission laid outs its priorities for its 2020 strategy including the intent to make ‘an efficient European venture capital market a reality’. This will not be achieved without the experienced institutions, which understand the nuts and bolts of investment in venture and growth funds, and support so much of Europe’s innovation. The AIFM directive, in its current form, is contrary to wider EU policy directives and could significantly counter their effect.”