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The EVCA is recommending changes to Solvency II rules and, as well as rules governing pension fund investment, to ensure institutions are not discouraged from investing in private equity and venture capital. The EVCA is also calling for a level playing field for private equity and venture capital managers wanting to raise capital and invest in businesses across the EU.
The proposals are at the heart of the EVCA’s 47-page response to the European Commission’s consultation on Capital Markets Union, one of the executive’s top ten priorities for the next five years. The Commission released its Green Paper in February, and called for submissions that could help make it easier for small businesses to raise money and make Europe a more attractive place for global institutions to invest.
“Institutional investors have capital to invest. The challenge for Capital Markets Union is to connect those investors with SMEs and startups. Private equity is one such connection”, said Dörte Höppner, EVCA Chief Executive. “This requires a balanced regulatory regime that encourages investments in long-term assets such as private equity and venture capital. We need rules that help fund managers to raise capital and to invest across national borders, wherever they see the opportunities. Otherwise companies in Europe will continue to lose out to markets such as the US and Asia.”
In its submission to the European Commission, the EVCA identifies barriers to fundraising, investment and divestment that restrict the amount of capital available to Europe’s businesses. The EVCA’s key recommendations to stimulate investment include:
· A reduction of the 39% risk weighting for private equity, venture capital and infrastructure funds under Solvency II legislation, which currently overstates the real risk insurers face when investing in the asset classes.
· Amendments to prudential regulation on banks and pension funds – via the Capital Requirements Directive IV (CRD) and the Institutions for Occupational Retirement Provision Directive (IORPD) – that promote rather than discourage investment in private equity and venture capital funds.
· Better access for European investors to non-EU funds through an effective third country passport scheme under the Alternative Investment Fund Managers Directive (AIFMD).
· The removal of unfair charges and barriers to private equity managers marketing funds in some member states in order to ensure a level playing field across the EU.
· Extension of European Venture Capital Funds Regulation (EuVECA) to allow a wider range of fund managers who support SMEs to use the third country passport scheme, without triggering the prohibitive costs of full AIFMD registration.
The EVCA’s proposals include measures to make it easier and cheaper for SMEs to list on IPO markets by reducing red tape. The association is calling for EU and international tax laws that do not discriminate against private equity and venture capital.
The European Commission will host a public hearing on the Next steps to build a Capital Markets Union in Brussels on June 8, 2015. The conference will be the first high-level public event after the end of the public consultation, and the first opportunity to discuss the recommendations and issues raised during the submissions period.
Full EVCA response to EC’s consultation on Capital Markets Union