European Social Entrepreneurship Funds (EuSEF) and their managers

The EuSEF Regulation (EU) No. 346/2013 has been applicable since 22 July 2013 and has been revised by Regulation (EU) 2017/1991 of 25 October 2017. It provides a (voluntary) common framework and label for social entrepreneurship funds at EU level, referred to as the “EuSEF” label.

In order to benefit from the label, EuSEF funds are subject to specific requirements regarding their investment policy. They are only allowed to invest in certain types of assets, such as equity or debt instruments issued by or loans granted to qualifying portfolio undertakings, meaning undertakings that that are at the time of an investment by the fund in that undertaking not admitted to trading on a regulated market or multilateral trading facility, that have the achievement of measurable, positive social impacts as their primary objective and that use their profits primarily to reach their primary social objective. EuSEF funds are also subject to specific rules in respect of fund portfolio composition, investment techniques and own funds. In particular, these funds must intend to invest at least 70% of their aggregate capital contributions and uncalled committed capital in assets that are qualifying investments and, as a consequence, do not use more than 30% for the acquisition of assets other than qualifying investments.

One of the defining features of the EuSEF regime is that it does not require the appointment of a depositary.

The EuSEF Regulation applies to EU managers that are subject to registration with the competent authorities of their home Member State in accordance with the AIFM Directive and manage qualifying social entrepreneurship funds with total AuM of less than EUR 500 million. Following the aforementioned revision, the use of the EuSEF label is also open to above-threshold Alternative Investment Fund Managers (AIFMs), which continue to be subject to the requirements of the AIFM Directive while complying with certain provisions of the EuSEF Regulation (those on eligible investments, targeted investors and information requirements).

EuSEF managers can also manage and market Alternative Investment Funds which are not EuSEF funds. However, the EuSEF passport does not apply to these funds.