Industry Comment

A new European regime for Venture Capital (as it seems the AIF does not fit all sizes after all!)

Friday, June 17, 2011

Just over a month from the publication of the final text of AIFMD, the Commission has published a new consultation document recognising:

'AIFMD does not always appear to be the ideal instrument for the promotion of the cross-border activity of venture capital in the EU.'

In fact, they tell us:

'It would seem disproportionate to require venture capital managers (to comply) with the strict AIFMD requirements in exchange of a passport'

and suggest the possibility of a new lightweight regime for the venture capital industry comprising:

• a voluntary registration regime (for a simplified passport where required!);
• a simple notification procedure;
• strict investment restrictions for retail investors;
• only basic reporting obligations
• lighter operating conditions; and
• no protectionist measures.

The policy is justified on the basis of creating a real internal market for generally smaller venture capital funds.

While you cannot question the overwhelming logic of all this and the initiative must be applauded, following on so close from the publication of AIFMD, questions must be asked about the integrity of the Directive in other sectors too.  For promoters, the implicit common sense warning against racing to embrace the AIF is perhaps clear and does not need spelling out here.

Moreover in specifically recognising the important contribution of 'venture capital,' you wonder whether adverse comment is being passed on the 'private equity' industry which, by any measure, is an equally important source of capital and management expertise for Europe.  The need though to help the venture capital industry in particular has been well established and there is perhaps no advantage in taking slight at the obvious inconsistency.

For those interested in contributing to this consultation process, comments must be submitted by 10 August 2011.

It will be interesting to see what the Commission ultimately decides upon and whether their proposals really tackle the problems identified by the Report of the Expert Group.

Click here to read the full consultation document.