A renewed focus on EU competitiveness, to be achieved in part through simplification and burden reduction, has led the European Commission (“Commission”) to consider changes to the framework applicable to EU alternative investment funds.
In its Savings and Investments Union strategy, the Commission announced a review of the European Venture Capital Fund (“EuVECA”) Regulation to take place in Q3 2026. On 15 January 2026, the Commission launched a public consultation on a proposed reform of the EU’s venture and growth capital funds framework, presented as an opportunity to boost the EU’s competitiveness and innovation capacity by addressing current investment gaps. The initiative goes beyond a simple review of the EuVECA Regulation and instead seeks to address a broader range of European venture and growth capital fund managers. Of more general relevance to the framework established under the Alternative Investment Fund Managers Directive (“AIFMD”), the consultation suggests that it may be appropriate to apply a more proportionate approach to registered alternative investment fund managers (“AIFMs”) and mid-size AIFMs, rather than imposing the currently applicable requirements under the AIFMD.
This update summarises the key policy drivers and potential reforms addressed in the Commission’s consultation.
Policy drivers: why now?
The consultation is shaped by a number of intersecting policy imperatives.
Competitiveness gap
Despite some recent progress, including the creation of the EuVECA and European Long Term Investment Fund (“ELTIF”) frameworks, Europe’s venture and growth capital funds market remains fragmented and narrow compared to global peers. This limits access to capital for EU enterprises, including innovative companies and strategic projects, with significant repercussions for innovation, growth and employment.
Market fragmentation and regulatory barriers
A recent Commission study on funds investing in innovative and growth companies highlights the regulatory and structural barriers facing venture and growth capital fund managers, ranging from EU rules and investor protection requirements to differences in national fund regimes, that fragment the market and limit fund managers’ ability to scale up, raise capital and invest efficiently across the single market.
Financing gaps for strategic sectors
As highlighted in the Savings and Investments Union strategy and the Competitiveness Compass, the EU needs a larger pool of capital to support strategic investments and lower financing costs for European businesses — from start-ups to more mature companies, including those developing crucial technologies for the green and digital transitions and those in the defence and space sectors, regardless of where they are based in the EU.
Aim and scope of the consultation
The consultation aims to enable venture and growth capital fund managers to operate more efficiently and on a broader scale across the EU single market, reduce administrative burdens and boost incentives to run larger funds and invest in the EU real economy, including in scale-ups and infrastructure — while ensuring a high level of investor protection, market integrity and effective supervision.
The Commission acknowledges that there are a number of issues with the EuVECA regime, which has led to a limited uptake by fund managers. The consultation seeks feedback on the operation of the EuVECA and European Social Entrepreneurship Fund (“EuSEF”) frameworks.
Respondents are expressly invited to focus their submissions on topics not addressed through the Market Integration and Supervision Package, which notably focused on cross-border marketing of funds, divergent supervisory practices, passporting of depositary services and more efficient operations for fund managers with a group structure.
Key reform areas
The consultation identifies several significant reform areas, each of which carries direct implications for managers and investors:
Regulatory simplification and burden reduction
The reform presents an opportunity to streamline and reduce burdens stemming from the EU regulatory framework, with particular focus on assessing whether regulatory requirements correspond to managers’ risk profile, size and market impact. In line with the Commission’s commitment to better regulation and simplification, stakeholders are invited to identify areas where simplifying existing EU legal frameworks could make EU regulation more efficient without undermining other policy objectives.
Questions specifically address the scope for simplification and burden reduction in the EU regulatory framework for venture and growth capital fund managers to enable greater scale, efficiency and capacity to invest in the EU economy.
The €500 million threshold: A scaling disincentive?
The consultation directly asks the extent to which the requirement to quickly adopt full-scope AIFMD obligations once assets under management exceed €500 million discourages small-size AIFMs from growing beyond a limited size.[1]
National regime divergences
For registered AIFMs (ie, those AIFMs managing AIFs with AUM under the thresholds specified in the AIFMD), the consultation flags a wide range of national divergences as potential obstacles, including: lack of standardisation of registration requirements across Member States; the absence of an EU management passport; the absence of an EU marketing passport for non-EuVECA AIFMs operating under national frameworks; and varying national requirements on own funds, depositary, risk management, valuation and conflicts of interest.
Authorised AIFM operational conditions
For authorised AIFMs (ie, those AIFMs managing AIFs with AUM above the AIFMD thresholds and holding a full-scope AIFMD authorisation), the consultation examines obstacles including: full-scope AIFMD authorisation and compliance costs; own funds and professional indemnity insurance requirements; depositary requirements and fees; reporting requirements under AIFMD Annex IV; remuneration rules; cross-border marketing and distribution barriers; taxation; cross-border structuring issues including use of aggregators and SPVs; and ESG and sustainability-related disclosure obligations. The consultation suggests that a more proportionate approach to “mid-size AIFMs” with AUM between €500 million and “several billion euros” may be more appropriate. The Commission queries whether more proportionate regulation and a compliance burden that is better adapted to small and mid-size AIFMs to better reflect their risk profile, investment strategy and business model could deliver effective supervision and continue to ensure a high level of investor protection and the integrity of the market.
EuVECA and EuSEF regime effectiveness
The consultation directly asks whether the EuVECA regime has delivered on its objective to facilitate SME equity financing and reduce financing costs, and whether targeted amendments to the EuVECA Regulation would be justified to address operational shortcomings, improve consistency in application and strengthen its role in financing the EU economy and fostering innovation.
Similarly, the consultation asks whether the EuSEF regime has delivered on its intended objectives, particularly in increasing investment in social enterprises, and whether a targeted review would significantly improve this fund segment.
Strategic sector focus and targeted alleviations
The consultation asks whether respondents would support more substantial regulatory alleviations specifically for fund managers whose strategies are primarily focused on investing in EU priority areas — such as defence, digital and green transitions — particularly those who have attracted investments or co-investments from a publicly supported body or programme such as InvestEU.
The Commission has identified as priority sectors: defence and dual-use technologies; digital technologies (including AI, quantum computing and semiconductors); life sciences (including biotech and health tech); strategic industries such as critical raw materials; and sustainability (clean tech, green tech, renewables).
Next steps
Responses to the consultation were requested by 12 March 2026. The Commission specifically invited quantitative data and case studies on the basis that well-evidenced responses carry greater weight.
Please get in touch with your usual Asset Management and Investment Funds Department contact or any of the contacts listed in this publication should you require further information in relation to the material referred to in this update.
Full details of the Asset Management and Investment Funds Department, together with further updates, articles and briefing notes written by members of the Asset Management and Investment Funds team, can be accessed at www.matheson.com.
[1]. The AIFMD sets different thresholds depending on whether the AIFM uses leverage (€100 million) or does not (€500 million). The consultation refers only to the €500 million threshold.