We did it, so you don’t have to. Here is a compilation of the latest regulatory changes and market research in the funds and investment sector. Our intention is to provide a summary relevant to both managers, investors and institutions navigating the world of funds.
Fund Managers
FDI screening rules entered into force as of 1 December 2023
As of 1 December 2023, the Swedish act on foreign direct investments (Sw. lagen (2023:560) om granskning av utländska direktinvesteringar) is in force. This means that almost all investments into Swedish activities that are worthy of protection (Sw. skyddvärda verksamheter) shall be notified to the Inspectorate of Strategic Products (the “ISP”) and – if such investments are to be made by or on behalf of an entity established or controlled by an entity outside of the European Union – be subject to the ISP’s approval.
The obligation to notify the ISP lies with investing parties (although investee parties are obligated to inform any investing party if they fall under the notification requirement). For funds – both UCITS and alternative investment funds – it is the manager of the fund who is responsible for the notification.
The notification shall be made and, if so required, any approval shall be granted before an investment within the scope of the act is made, similar to the current practice in regard to competition rules and the approvals required thereunder. In practice, this means that a notification should be made after signing but before closing an investment.
Following a notification, the ISP shall assess the nature and scale of the activities of the investee party and the circumstances surrounding the investing party to conclude whether the investment may be harmful to the safety or public order of Sweden. The ISP shall first make an initial assessment within 25 business days, resulting in the investment either being approved, or a deeper assessment being conducted. A deeper assessment shall then be concluded within 3 months or, in certain circumstances, within 6 months, and shall result in the investment either being approved, approved only under certain conditions, or prohibited.
If an investment is made despite the ISP having ruled that it is prohibited, any acts forming part of the investment or that aim to implement the investment shall be regarded null and void. It should further be noted that the ISP may issue sanctions, e.g., if investments are made despite being prohibited or not in compliance with conditions set out by the ISP, of up to SEK 100 000 000.
If you have any questions regarding foreign direct investments, please do not hesitate to reach out to us. Wigge is an accredited agent with the ISP, and we have a good understanding of each step of the process, including:
- The due diligence process relating to both investing and investee companies and assessing whether an investment is within the scope of the act.
- Carrying out the notification procedure with the ISP and managing any requests in relation thereto.
- Ensuring compliance with conditions set out by the ISP, such as furnishing reports, implementing policies and systems, and any other contractual or regulatory measures which may be required.
The Swedish Government launches public inquiry into whether funds incorporated as limited liability companies with variable share capital should be introduced in Swedish law
The Swedish Government has appointed a special investigator to analyze and propose the legislative amendments needed to adapt Swedish law to changes in Directive 2011/61/EU on Alternative Investment Fund Managers (“AIFMD”) and Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities. This will cover, inter alia, modifications to AIFMD under the AIFMD 2.0 package.
The special investigator will examine, among other things, the possibility to introduce fund structures based on limited liability companies with variable capital into Swedish fund regulations. Similar structures are already available in several jurisdictions and, in our view, these changes would strengthen the Swedish fund market, as well as promote greater cost efficiency and flexibility.
Furthermore, the special investigator shall also review the rules on redemption frequency in investment funds and special funds, and analyze how the resilience of Swedish funds and the protection of investors can be strengthened. The aim is to modernize fund legislation and make the Swedish fund market more competitive and resilient, and to adapt the legislation to EU law.
The report is to be presented no later than 30 April 2025.
Find the terms of reference for the investigation (Sw. kommittédirektiv) here (in Swedish).
ESMA finalises technical standards under the revised ELTIF regulation
The European Securities and Markets Authority (“ESMA”) has published its final report on draft regulatory technical standards (“RTS”), supplementing Regulation (EU) 2015/60 on European long-term investments funds (“ELTIF”).
The following proposals are included in the draft RTS:
- Minimum holding period. Allowing ELTIF managers to select the minimum holding period that is best adjusted to an individual ELTIF, based on criteria set in the RTS, and upon justifications to the competent authority.
- Maximum redemption frequency. Introducing a common standard (maximum quarterly redemption frequency), while allowing the ELTIF manager to deviate from it, upon justifications to the competent authority.
- Choice of liquidity management tools. The mandatory implementation of at least one anti-dilution mechanism (in addition to a notice period), and redemption gates, while allowing the ELTIF managers to deviate from it in specific circumstances and upon justifications to the competent authority.
- Notice period and maximum percentage of liquid assets that can be redeemed. In addition to applying minimum percentages of liquid assets, depending on the length of the notice period, different percentages of maximum amount of liquid assets that can be redeemed are also applied.
The draft RTS have been submitted to the European Commission, which will decide whether to endorse and finally approve them within three months.
Find ESMA’s final report on the draft RTS here.
The ESAs put forward amendments to sustainability disclosures
The three European supervisory authorities (together, the “ESAs”) have published their final report amending the draft RTS to the Commission Delegated Regulation (EU) 2022/1288 supplementing the Sustainable Finance Disclosure Regulation (the “SFDR Delegated Regulation” and “SFDR”, respectively). The ESAs propose adding new social indicators and streamlining the framework for the disclosure of principal adverse impacts of investment decisions on the environment and society. The ESAs also suggest new product disclosures regarding “greenhouse gas emissions reduction” targets.
Furthermore, the ESAs propose further technical revisions to the SFDR Delegated Regulation, including:
- Improvements to the disclosures on how sustainable investments “do no significant harm” (“DNSH”) to the environment and society.
- Simplification of the pre-contractual and periodic disclosure templates for financial products.
- Other technical adjustments concerning, among others, the treatment of derivatives, the calculation of sustainable investments, and provisions for financial products with underlying investment options.
The draft RTS have been submitted to the European Commission, which will decide whether to endorse and finally approve them within three months.
Find the ESAs’ final report on the draft RTS here.
ESMA publishes three explanatory notes on key terms in sustainable finance
ESMA has published three explanatory notes covering key topics of the sustainable finance framework: (a) the definition of sustainable investments, (b) the application of DNSH requirements, and (c) the use of estimates. While ESMA’s explanatory notes do not add to the relevant regulations, we believe they can be of great help to all financial market participants looking to quickly get a broad outline of some key terms in sustainable finance.
Definition of sustainable investments
ESMA’s explanatory note on the definition of sustainable investments provides a concretized overview of the criteria that constitute the “sustainable investment” definition under SFDR and the “environmentally sustainable economic activities” definition under Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (the “Taxonomy Regulation”), and the extent to which these definitions are applicable to different stakeholders.
Find ESMA’s explanatory note on the definition of sustainable investments here.
Application of the DNSH requirements
ESMA’s explanatory note on the application of the DNSH requirements describes the DNSH concepts under SFDR, the Taxonomy Regulation and Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (the “Benchmark Regulation”).
While the DNSH concepts under the regulations have a similar purpose, a notable take-away is the difference in what the application of the concepts entail and by whom the concepts shall be applied between the regulations, and the interactions between SFDR and the Taxonomy Regulation.
Find ESMA’s explanatory note on the application of the DNSH requirements here.
Use of estimates
ESMA’s explanatory note on the use of estimates provides an overview on the use of “estimates” and “equivalent information” as a source of data in the preparation of ESG metrics pursuant to SFDR, the Taxonomy Regulation and the Benchmark Regulation.
As disclosures play a key role in all of the regulations, each regulation sets out different situations in which estimates may be used and specific requirements for calculating them.
Find ESMA’s explanatory note on the use estimates here.
Market and market research
Invest Europe and EIF publish a collaborative report mapping the European VC ecosystem and tracking gender diversity
Invest Europe, in collaboration with the European Investment Fund (“EIF”), has published the report The VC factor: Gender lens edition, mapping the venture capital landscape in Europe and tracking the participation of women in venture capital funds and start-ups. The report highlights that while women have held around 23% of roles in VC firms between 2011 and 2021, the representation amongst senior level investment positions has increased only from 9% to 12.5%. However, there has been a sharper increase in women holding start-up founder and CEO positions, going from 6.7% to 10.5% in the same period.
Further, the report highlights that while gender diversity at venture capital firms and start-ups improved over the decade from 2011 to 2021, the data indicates that the pace of progress has been slow and that the road towards gender parity is still long ahead.
Find Invest Europe’s press release and the full report here.
Private equity H1 2023 activity weakens as industry survey shows tentative signs of optimism and exit preparations
Invest Europe reports that the European private equity sectors drop in activity for the first half of 2023 amid challenging economic and market conditions. During the first half of 2023, private equity funds invested EUR 32 billion, which is 54% lower than 2022 and in line with the levels in 2016. Fundraising weakened by 60% from 2022’s record levels, down to EUR 33 billion. 55% of managers have made exit preparations their key focus for the coming year. While the number of funds having raised capital is 15% below the average of the last five years, venture capital fundraising has remained relatively robust and in line with levels recorded in early 2020.
Invest Europe also highlights the growing optimism surrounding new sources of capital, including the potential of access to private equity for a wider group of individual investors, and that environmental, social, and governance considerations remain a driving force in making the industry more sustainable and attractive.
Find Invest Europe’s press release and the full report here.
