The European Commission has released proposals calling for a bespoke funds regime for businesses whose primary objective is to achieve positive social effects over and above the quest for financial returns.
Similar to regimes currently under work for buyout and venture capital funds, the ‘European Social Entrepreneurship Funds’ (EuSEF) framework would offer GPs a pan-EU marketing passport – a benefit designed to alleviate the patchwork of national rules that currently stifle investment in social businesses, the Commission said.
Moreover the Commission said it sought to clarify what constitutes a social entrepreneurship fund. There is currently confusion in the market “concerning social investment, with competing structures claiming social or ethical credentials”, noted law firm Dechert in a client memo on the matter. The proposals would aim to create a single defined set of standards governing the EU market.
Tax advantages would also be used to drive interest in the new regime, however a €500 million cap would be set on EuSEF funds. Those funds eclipsing that benchmark would fall under the more demanding regime set by the Alternative Investment Fund Managers Directive.
The proposals come at a time of growing interest in social entrepreneurship. A recent JP Morgan report estimates social investments could blossom into a market with investment opportunities of between $400 billion and $1 trillion over the next decade.
EuSEFs could be in place by as early as the end of 2012, according to Dechert.