By David Brooke
LONDON (LPC) - The European Commission has introduced proposals to bolster cross-border investing in alternative investment funds (AIF) to better improve financing options for small and medium-sized enterprises (SME) across the continent.
Investors traditionally look domestically when allocating capital to AIFs, including private debt funds, a situation the Commission wants to change.
The investment fund market across Europe totals €14.8trn according to the European Fund and Asset Management Association, but 70% of investment funds are registered for sale only in their domestic market.
AIFs, including private debt funds, are able to obtain passport rights under the EU’s AIFMD, which permits the marketing of investment products throughout the continent. Yet just 3% of AIFs are marketed to more than three member states, the Commission said.
Asset managers have complained that the costs of complying in other member states has prevented them from testing their funds in a new market. While regulators at both the EU and national levels have been concerned at a lack of a level playing field.
The Commission wants to boost competition among funds in Europe as part of its Capital Markets Union (CMU) program.
Among the key proposals is greater transparency for both specific national requirements and how much they charge as well as a European-wide harmonized definition of “pre-marketing”.
Such changes are expected to streamline regulatory issues facing funds operating across Europe and reduce costs related to working within the existing legal framework. The Commission estimates that funds will save between €306m to €440m every year under the new proposals.
Further integration of the funds market is seen as a priority by the Commission as the UK leaves the EU. The UK has a huge investor base and the largest private debt fund market, there is a worry that if the market remains fragmented across Europe the overall market may become smaller as a result.
Valdis Dombrovskis, a Commission vice-president, said: “To have a genuine CMU in Europe by 2019, we need to advance in three directions: European labels and passports for financial products, harmonized and simplified rules to deepen capital markets and more consistent and efficient supervision."
Across Europe there is a growing acceptance among authorities of private debt funds providing financing to SMEs.
At the turn of the year, France eased its banking monopoly laws and introduced an legal structure that allows funds to originate laws without the need of a fronting bank. And this month, Ireland's Central Bank permitted funds to expand their credit offerings to borrowers as of this month.
Jyrki Katainen, vice-president responsible for jobs, growth, investment and competitive, said: “We want to make it easier and cheaper for companies, especially SMEs to get the financing they need.”