AIFM could decimate venture and growth funds, EVCA says

According to a survey of 28 institutional investors in the space carried out by the association, 67 per cent would either substantially reduce their allocations or withdraw from growth and venture investment completely, if the Alternative Investment fund Managers Directive (AIFMD) – recently slammed by US Treasury secretary Tim Geithner -  passes in its current form.

28 institutional investors with a total of €560bn under management responded to the survey, with 52 per cent anticipating investing in venture at the same level should there be no changes in current regulation and nearly eight per cent expecting to increase their allocation. The respondents have committed over €14bn to venture and growth capital in recent years, EVCA says.

The loss of such a significant source of capital could strangle innovation in the EU, as it could leave innovative companies unable to raise the financing necessary to develop and commercialise their products. Over 90 per cent of European venture capital is invested in SMEs, with recent venture-backed success stories including online telephony Skype, and solar energy component manufacture Q:Cells, which employs over a thousand people.
EVCA estimates that the polled institutional investors have financed 2,200 European companies in the last five years.

85 per cent of respondents took particular issue with the proposed “third country” provisions in the directive, which could prevent EU-based investors from investing out of the 27 EU member countries.

EVCA secretary general Javier Echarri said, commented “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, who understand the nuts and bolts of investment in venture and growth funds, and support so much of Europe’s innovation.”

French Prime Minister Nicolas Sarkozy is currently visiting UK Prime Minister Gordon Brown London, and is reportedly in talks to map out a deal over EU fund regulation reforms, with Gordon Brown hoping for compromise.

According to Bloomberg, Brown said the talks had been “constructive” so far.

The report quotes him as saying, “I believe we can reach a solution. I am confident people around Europe want more transparency. People will see that we have not harmed, indeed we have protected the interest of the financial sector around Europe.”

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