Insight

How African asset managers can leverage EuVECA and EuSEF to attract impact capital

CT

The Global Impact Investing Network (GIIN) estimates in its new 2022 study that the worldwide impact investing market is now worth US$1.164 trillion – marking the first time that the figure has exceeded the US$1 trillion threshold.

Significantly, an earlier survey by the GIIN in 2020 established that nearly half of global impact investment capital goes to Africa. This trend is only expected to continue unabated as estimates from the Brookings Institution suggest that Africa requires an additional US$256 billion in funding every year until 2030 to meet the UN’s Sustainable Development Goals.

Meanwhile, the Centre for Global Development notes that Europe is the developed region best placed to support private finance mobilisation at scale in sub-Saharan Africa. With European development finance institutions (DFIs) such as the European Investment Bank, KfW Development Bank and FMO Netherlands carrying targets for Africa-centric impact investments, it is evident that African asset managers would benefit from being able to secure visibility for their funds from investors based in Europe.

For African asset managers seeking to attract European investors, a world of opportunities are open to fund managers who register and qualify for the European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) labels. Uniquely suited for the marketing of Africa-centric impact funds, these collective investment schemes and the associated EuVECA and EuSEF regulations enable growing companies to access relevant capital by allowing investors to fund SMEs and social ventures throughout Europe.

In this article, we’ll examine what these regimes mean and how African asset managers can leverage them to attract impact capital at scale, showcasing one of our clients as a prime example.

What are the requirements that EuVECA and EuSEF funds must meet?

As the names suggest, EuVECA funds provide venture capital that seeks to support new and innovative firms, while funds that bear the EuSEF label are required to invest into social ventures that strive to create a positive impact on the community.

A fund can evidence eligibility for the EuVECA and EuSEF labels if it:

  1. Meets the definition of an alternative investment fund (AIF)
  2. Invests at least 70% of the capital contributed by investors into SMEs
  3. Provides funding to such SMEs in the form of equity or quasi-equity
  4. Does not use leverage

Registration under the EuSEF or EuVECA is only available to managers that:

  1. Are established in the EU
  2. Are registered by their home state regulator
  3. Are managing unleveraged portfolios below €500m with a minimum five-year lock-in period

What opportunities does an EuVECA or EuSEF label open up to the fund?

Funds that qualify under the EuVECA or EuSEF label may opt in to an EU-wide marketing passport under which an AIFM registered in one member state may market qualifying funds in all other member states to the following categories of investors:

  1. Professional clients under the Markets in Financial Instruments Directive (MiFID)
  2. Qualified investors who commit at least €100,000 and state in writing that they are aware of the risks associated with the investment
  3. Executives, directors and employees involved in the management of the EuVECA or EuSEF

Case study: How African asset managers are using these labels to attract impact funds

At IQ-EQ, we were delighted to welcome on board the Impact Fund for African Creatives (IFFAC), an investment fund focused on creative SMEs in Africa. Roberta Annan, founder and Managing Partner of IFFAC, is also a United Nations Environment Programme (UNEP) Goodwill Ambassador for the Creative Economy. She created IFFAC to empower the creative sector of Africa through structuring, facilitating and enabling entities in the creative sector to access capital, resources and international marketing avenues. 

After discussions with Roberta on how best to bring visibility for her impact-centric venture from the right investors, we have helped put in place a structure for IFFAC to enable the fund to attract capital at scale from investors based in Europe. This structure includes an investment holdings entity in Mauritius as well as an early stage and development fund to be set up in the Netherlands as a EuVECA qualified fund.

Roberta stated: “Our three-pronged strategy for achieving impact and ROI includes an incubator programme and grant funding to drive the success of new business ideas and concepts; an accelerator and venture capital fund to facilitate the creation of new products or services; and a growth, development and infrastructure fund designed to provide follow-on growth financing to mature ventures. We are delighted to partner with IQ-EQ and unlock access to impact funding from mature markets in Europe by marketing our venture capital fund under the EuVECA label.”

Get in touch with IQ-EQ

For African asset managers looking for similar support, IQ-EQ is highly experienced in the set-up and administration of EuVECA and EuSEF funds across a number of jurisdictions.

What’s more, we provide services suited to all stages of the fund, including a full suite of AIFMD compliance solutions, and can deliver end-to-end support and a smooth transition for fund managers seeking to grow an unleveraged portfolio beyond €500m in AUM. At such stage, we would help you in renting the requisite AIFM licence and preparing for a regulatory AIFMD depositary to ensure that you have the support of a trusted partner throughout your fund’s lifecycle. 

For more information, please don’t hesitate to contact me: