AGEFI Luxembourg - juin 2025

Juin 2025 31 AGEFI Luxembourg Fonds d’investissement ByDr.SebastiaanNielsHOOGHIEMSTRA, Loyens&Loeff Luxembourg * A s part of the emerging Savings and Investment Union (“SIU”), the Euro- pean Commission revealed plans to review and upgrade the Regu- lation (EU) No 345/2013, as amended (“EuVECAR”) to make the EuVECA label more attractive. This contribution sug- gests a number of impro- vements that “EuVECA 3.0” could entail. IncreasingThresholds for Sub-thresholdAIFMs The most important objectives underlying Directive 2011/61/EU,asamended(the“ AIFMD ”),areinvestor, market and, toa lesser extent, stakeholder protection. ContrarytotheAIFMD,EuVECARcontainsproduct regulation in which, amongst others, the eligible in- vestmentsarerestrictedto(non-listed)qualifyingport- folio undertakings (“ QPUs ”) and borrowing that is not coveredby capital commitments is prohibited. Hence, there is less of a concern froma systemic risk point of view. This could justify lifting the EuVECA “sub-threshold regime” from EUR 500mln to EUR 1bln or beyond. In particular, as the EuVECAR also contains a quite substantial amounts of rules that apply toEuVECAmanagers, i.e. sub-thresholdalter- native investment fund managers (“ AIFMs ”) regis- teredunder the EuVECARas “EuVECAmanager”. Improvements toManagement &Marketing Passports Introduction Cross-borderManagement Passport for Sub- ThresholdManagers The EuVECAR contains an option to reconsider whether a “management passport” shouldbe intro- duced for EuVECAmanagers. Indeed, it would be preferable to (formally) introduce suchapassport, as product regulation of EuVECAs is highly harmo- nized. Also, EuVECA managers are subject to har- monized EU standards. Therefore, the risks involving amanagement passport are low. Basedon the ESMAregister of the EuVECAregula- tion, currently already various examples are to be foundofEuVECAsmanagedby(sub-threshold)Eu- VECA managers on a cross-border basis. Appar- ently, various Member States, thus, in practice, already allowfor such a passport, albeit there are no notification requirements nor cooperation regimes under the EuVECAR in place for such managers. Despite of this, the EuVECAR leaves a lot of ambi- guitywhether the cross-bordermanagement byEu- VECAmanagers is nowalready allowed. For example, theEuVECARcurrentlydoes not pro- hibit that sub-threshold managers manage EuVE- CAs on a cross-border basis, nor is an explicit management notification required in case of cross- border management. In addition, Article 3 EuVE- CARrequiresEuVECAs tobeestablishedwithin the territory of a Member State. The regulation, thus, does not require the EuVECA managed by sub- thresholdAIFMstobeestablishedinthesameMem- ber State as the EuVECAmanager. Theintroductionofaharmonizedmanagementpass- port regimewouldbring clarity in this area. ClarificationEuVECAMarketing Passport Currently, there are unclarities with respect to theapplicationoftheEuVECAmarketingpass- port. Some Member States require that autho- rizedAIFMs only file for a marketing passport notificationundertheEuVECAR,whereasother Member States require that both theAIFMDand the EuVECA marketing passport notifica- tions have to be completed simultane- ously to successfully passport an EuVECA. The reason that some national competent authorities apply these simultaneously is that the EuVECAR does not ex- plicitly disapply the AIFMD marketing notification rules that apply to authorized AIFMs man- aging EuVECAs. However, EuVECAs are subject to heavily harmonized product rules. Hence, there is no justifi- cation for allowingEuVECAsmanagedbyEuVECA managers, i.e. sub-thresholdAIFMs, to be marketed on a cross-border basis under more favourable con- ditions than thoseapplicable to themoreheavily reg- ulated authorizedAIFMs. Collapsing EuVECA&EuSEFRegulations So far, Regulation (EU) No. 346/2013, as amended (“ EuSEFR ”), has had limited uptake. One of the rea- sonsthereofisthatitonlyprovidesalegalframework forimpactfunds,whichareasmallpartoftheoverall market and, given thedevelopment of the SFDRand the ESMA guidelines on ESG funds’ names, may be by somemarket practitioners considered not to have any added value anymore. Given that the EuSEFR and EuVECAR are substantially similar. It could be considered to collapse both and allow the label of “EuSEF”tobeusedbythosemanagersundertheEu- VECAR that would apply the (limited) top-up Eu- SEFR provisions that are mainly related to the achievement of measurable, positive social impact of the QPUs in which EuSEFs invest and the corre- sponding social impactmonitoringpolicy. Changes to the EuVECAs Investment Policy Towhat extent the scope of eligible assets and strate- giesmay bewidenedunder the EuVECAR is subject todebate. Beloware some suggestions. RemovingRestrictions on LoanOrigination Given the “venture capital” nature of the EuVECAR, loans are so far only allowed as a possible comple- ment, but not as a substitute, for other types of quali- fying investments under the EuVECAR, such as (quasi-)equity instruments.However, the scopeof el- igible investments has already beenwidened in 2018 and it is not to be excluded that amendments in rela- tion to EuVECA 3.0 will be revamped with certain typesofeligibleinvestmentsthatcanbeconsideredas being part of a “private equity” strategy. Given the popularityofprivatedebtinthepastyears,itcouldbe considered to remove the 30% restriction and allow EuVECAs to be loan-originatingAIFs. Remarkably, EuSEFR is very similar in terms of reg- ulatory design to EuVECAR, but does not impose similar restrictions to European Social entrepreneur- shipfunds(“ EuSEFs ”)andmicrofinancetypesofEu- SEFshavebeenallowedeversincetheintroductionof the EuSEFR. Given that both EuVECAs and EuSEFR are closed- ended vehicles, prohibit investments in financial un- dertakingsanddonotallowforleverage,thereareno (or after EuVECA3.0 limited) risks, suchasmaturity, liquidity transformation and leverage risks, involved in allowing EuVECAs to be loan-originatingAIFs.A point of discussionwouldbe, however, whether and towhatextenttheAIFMD2regimeapplyingtoman- agers, as well as “AIFs which originate loans” and “loan-originatingAIFs”,wouldbeextendedtoEuVE- CAs in order to make EuVECAs acceptable as full- fledged loan-originatingAIFs. ExtensionEligible “Qualifying PortfolioUndertakings” Currently, QPUs under the EuVECAR include (i) non-listed undertakings that employ up to 499 per- sons and (ii) SMEs, as defined under Directive 2014/65/EU,asamended(“MiFID2”),whicharelisted onanSMEgrowthmarket.IfanextensionoftheQPU definitionwere to be considered, thewidest possible scope would be to align with the “QPU” definition underELTIF2.0,whichconsidersallnon-listedenter- prises that are not financial undertakings as eligible “QPUs”, including the “FinTech exemption”, aswell as listed QPUs up to a market capitalization of EUR 1.5bln.Anotherconsiderationcouldbetopartlyalign the“QPU”definitionwiththeELTIF2.0“QPU”defi- nition, but to restrict eligible undertakings to a “mid- cap” category for companies (i.e., companies of up to 1,500 employees and sales not exceeding EUR 1.5bln or a balance sheet total not exceedingEUR2bln). Includinga“mid-cap”categoryofeligiblecompanies would go beyond the current permissible SMEs and QPUs that are listed on a SME growth market. Un- clear is to what extent widening the QPU definition under the EuVECAR would be desired on the EU level. Inparticular, as, considering theAIFMD, prob- ably it is not the political will to introduce a lighter regime forAIFMsmanagingventure capital andpri- vateequityfundsthanforthosemanagingotherasset classes, such as real estate or infrastructure. RemovingRestrictions FoFs&Master-Feeder Structures In 2023, ESMA confirmed in a Q&A that both Eu- VECAs and EuSEFs may invest in a fund (i.e. AIF) that has not been registered as an EuVECA/EuSEF, provided that the “target fund”materially complies with the criteriaof thedefinitionof aqualifyingven- ture capital or social entrepreneurship fund under the respective regulations. To allow for more effective fund-of-fund and mas- ter-feeder structures, itwouldbegoodalignwith the ELTIF 2.0 “look-through approach” in this respect. Basedupon lessons learnedwith the introductionof the recent ELTIF 2.0, investments shouldnot be lim- ited to EUAIFs or EU master AIFs. Instead of that, any target fund should be eligible that materially complies with the eligible investment criteria of the EuVECAR on a “look-through basis”. However, similar to theAIFMD, theEuVECAmarketingpass- port should not be available for EuVECA feeders that invest in non-EUmasterAIFs. In addition, it would be great if a slight amendment couldbetakenon-boardforELTIF2.0alongrevamp- ing the EuVECAR inwhich target funds would not needtobeEUAIFs.Currently,ELTIFsmayco-invest with non-EUAIFs at the asset level, i.e. investing in non-EU based “QPUs”. However, they are not al- lowed to invest in non-EUAIFs. This is contrary to the original objective of ELTIF 2.0 for allowing for globalinvestmentstrategiesandnotrequiringamin- imumEUnexus anymore. Introducing (limited) leverage If eligible investment in QPUs under the EuVECAR wouldbeextendedbeyondventurecapitaltypeofin- vestments, it couldbe considered toallowfor a larger amount of investment strategies by allowing for lim- itedleverage(throughborrowing)ofupto,forexam- ple, 100-150%of theNAVof capital of anEuVECA. Clarification application Prospectus Regulation Recital20ofRegulation(EU)2017/1129(the“ Prospec- tusRegulation ”)clarifiesthatprospectuseswithinthe meaning of that regulation are not required to be drawnup,ifnon-qualifiedinvestorscommittoinvest, at least, EUR100K. Itwouldbe helpful to clarify that, indeed,drawingupaprospectuswithinthemeaning of the Prospectus Regulation is not required for Eu- VECAsthataremarketedtoprofessionalinvestorsor “other investors” that self-certify to understand the risks and commit, at least, EUR100K to anEuVECA. Extension toRetail Investors? Currently,EuVECAscanbemarketedtoprofessional andsemi-professionalinvestorsthatcommittoinvest a minimum of EUR 100K. However, the EuVECAR regime in terms of investment policy poses less risks to investors than, for example, the ELTIF 2.0 regime. It could, therefore, be considered that EuVECAs could, additionally, be marketed to retail investors, providedthatthesamerulesunderELTIF2.0interms of, for example, suitability rules and product gover- nancewould apply for EuVECAs as for ELTIFs. Matchmaking The EuVECA is a closed-ended AIF and, therefore, liquidity options are limited.Albeit the uptake under ELTIF 2.0 is limited so far, it has a promising future. The ELTIF 2.0 LVL 2 provisions allow for matching throughdigital and/or automatedmeans. This could help the development of a liquid secondariesmarket forEuVECAs.ExtendingtheELTIF2.0matchmaking system to EuVECAs could help in the future the de- velopmentofasecondarymarketforEuVECAs.Cod- ifying would help digitalization, as otherwise automated systems could be qualified as “multilat- eral” and, potentially, matchmaking would only be allowed through regulatedmarkets orMTFs. Outlook:Will theCommission’s SIUStrategy PlanunlockEuVECAs? The amendments related to ELTIF 2.0 have already shown signs of impact,withalmost asmanyELTIFs being registered in 2024 as in the previous seven years combined. The ELTIF, as well as UCITS (and PEPPs) have shown that it is difficult to directly come up with well-designed frameworks that im- mediately unlock their full potential. In general, “trial anderror” andquite somepatience is required to identify gaps in an EU framework and to come upwith amendments that make a framework fly. In the caseof EuVECAs andEuSEFs, the framework is now for more than a decade in place. Albeit Eu- VECAs had in some Member States, such as the Netherlands, quite some success, it cannot be said that its potential is fully understood nor reached throughout the EU. Therefore, it is crucial to up- grade the regulationandmake the labelmore attrac- tive by widening the scope of eligible assets and strategies; and to acknowledge that EuVECAs can alsoplaya role indiversifyingfinancingoptions that may complement (but not replace) traditional bank financing and credit provision. It remains to be difficult to design legislation that strikes the right balance between encouraging pri- vate capital for the benefit of the economy and po- tential risks.Although care is needed, it is clear that the EuVECAR in its current fashion will likely not reach its full potential. (*) Dr. Sebastiaan Hooghiemstra is a senior associate in the invest- ment management practice of Loyens & Loeff Luxembourg and Senior Fellow of the International Center for Financial Law & Governance at theErasmusUniversityRotterdam. Some suggestions for EuVECA3.0 7 0% of hedge funds now invest in pri- vate markets, according to new re- search from IG Prime, the prime broker for hedge funds, other institutions and family offices. Investor demand for hedge funds to improve their returns has led tomore of themto invest in awider array of alternatives such as private credit, private equity and private real estate as some of the more “traditional” hedge fund strategies have failed to deliver over the last fewyears. 61%of hedge funds say they now invest in private equity, 45% in pri- vate real estate, 39% in private credit/debt and 38% in infrastructure. Demand for investment in private markets from investors has also been driven by a global trend towardsdelistingfromstockmarkets,andcompanies holdingoff fromIPOs for longer. These are expected tocontinuedrivinggrowthforprivatemarketsinthe future. Their expansion into private markets means hedgefundsareincreasinglycompetingwithprivate equity funds who have also been expanding from private equity into other private asset classes such as infrastructure, private credit and real estate. Says Chris Beauchamp, Chief Market Analyst at IG Prime: “The growth of hedge funds has meant that there has been a crowding of trades that have tradi- tionallyworkedwell for them.Arguably someof the opportunities have been arbitraged awaywhich has driven funds to look for newways of getting index- beatingreturns.Manyhedgefundsareseeingprivate markets as an answer.” Private equity is the private market asset class with the fastest growth amongst hedge funds, with 58% of hedge funds saying it’s the area they’ve most increased exposure in during the last year. Hedge fundmanagers are also increasing their exposure in real estate (48%), private credit (31%), infrastructure (30%) and natural resources (34%). Private equity struggled in 2024 while private credit grewrapidly Despite its growingpopularity, higher interest rates and uncertainty about the future of markets made private equity more difficult in 2024. That may change in the second half of this year as tariff levels continue to move down from their “worst case” scenarios. While private equity suffered in 2024, private credit has continued to grow rapidly – 31% of hedge funds counted private credit as the area of greatest growth within private markets. Stricter banking regulation and the withdrawal of bank lendinghasmade private credit an important alter- native for borrowers. Says Chris Beauchamp: “While most hedge funds see private equity as the substantial growth invest- ment in private markets, demand for hedge funds that invest in private credit have also been particu- larly strong. The question for hedge funds is what skills they bring to bear in these privatemarket that might give themthe edge over existingparticipants such as PE funds. Some will be competing directly with PE and private credit funds for the same investments. Others will be hoping that they can use the current tariff related disruption to pick up assets priced for distress.” 70%of hedge funds now invest in privatemarkets ©Freepik