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29 February 2012

ECON Committee published draft report on European Venture Capital Funds

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A first set of amendments concern the definition of a 'qualifying venture capital fund'. The Rapporteur, Philippe Lamberts (BE, Greens), considers that VC funds should be closed-ended, in order to ensure that their shares are not redeemable for cash or securities until they liquidate.

Such provision would indeed ensure that European venture capital funds are protected against a sudden rash of redemptions by fund holders. Furthermore, the Rapporteur believes that EVCFs should be located in the Union, as a means to prevent effectively the establishment of funds managed by an EU manager in tax havens for tax avoidance or regulatory arbitrage purposes.

The Rapporteur intends to strengthen the EVCFs fund-raising environment, by including in 'qualifying investments' not only equity and quasi equity instruments, but also shares or units in other EVCFs (Article 3, point (b)). By doing so, the Rapporteur also intends to acknowledge the growing importance of corporate venture investments in other EVCFs.

The Rapporteur also introduces several amendments to the definition of a 'qualifying portfolio undertaking' under the EVCFs Regulation (Article 3, point (d)). A first amending proposal consists of excluding from a 'qualifying portfolio undertaking' any financial product or service providers, with the exception of European venture capital funds and financial technology providers. The Rapporteur also proposes to prohibit the localisation of a 'qualifying portfolio undertaking' in tax havens or any secrecy jurisdictions, in order to reduce tax evasion opportunities. A third amending proposal aims at ensuring that qualifying portfolio undertakings are below five years of age, in order to reduce the risk of any misappropriation of the venture capital passport, such as the financing of more mature and high-growth businesses.

In accordance with the Council Directive 2001/23/EC, the Rapporteur recalls that the proposed Regulation should also ensure that the rights of the employees from undertakings directly controlled by European venture capital fund managers should be safeguarded.

Finally, the Rapporteur also believes that for each EVCF it manages, the manager shall ensure that a single depositary - responsible for the safe-keeping of assets and the oversight functions - is appointed. Such a provision would ensure the continuity of the existing Community framework, given that both the UCITS and AIFM Directives require the mandatory appointment of a depositary for collective investment undertakings and alternative investment funds.

Draft report

© European Parliament

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