EP strives to draw investors by boosting security
By Ophélie Spanneut | Friday 01 June 2012
To make European social entrepreneurship funds more attractive, members of the European Parliament support the European Commission’s approach but boost security for investors by adding an authorisation procedure and the requirement of appointment of a depositary.
Social businesses are financed mainly by donations and public subsidies. To ensure sustainable growth, however, they have to be able to secure funds from a wider range of sources. Yet the expansion of social entrepreneurship funds is hemmed in by regulatory shortcomings and market failings. Commissioner Michel Barnier, with a view to the social mission of such enterprises, wishes to establish an exemption from the AIFM (alternative investment fund managers) Directive. It would impose less binding rules on European social entrepreneurship funds to make them more attractive.
The Commission’s draft regulation, presented in December 2011, aims to set up a legislative framework that suits the needs of social enterprises, investors and specialised investment funds. It imposes requirements related to portfolios, investment techniques and the businesses such funds may target, as well as rules on the organisation of funds’ internal management.
Members of the European Parliament’s Committee on Economic and Financial Affairs (ECON) adopted, on 31 May, a report by Sophie Auconie (EPP, France). They wish to make these funds attractive to draw the largest possible number of investors, while making them secure enough to boost investor confidence. To remedy market fragmentation and facilitate cross-border investments, MEPs opted to make the system more secure. Instead of simple registration, which does not permit authorities to ensure that fund managers play by the rules, the report introduces an obligation for member states to set up an authorisation procedure for fund managers. To improve traceability, MEPs establish the obligation to appoint a depositary for each fund, which will guarantee their location.
The aim of social businesses is not to make a profit, but to produce a positive social impact. This sector is expanding quickly, so much so that, according to estimates by JP Morgan, socially responsible investment may be well in excess of €100 billion. According to the Commission, there is a growing commitment to make investments whose goal is not limited to financial profits alone, but that also seek to bring about social improvements.
After the vote, Auconie welcomed the report’s support for the social entrepreneurship movement through a “safe and attractive investment mechanism”. “Profits alone are not the alpha and omega of all investors.” The rapporteur obtained a mandate for negotiations with the Council and Commission with a view to a first-reading agreement if possible.