Risk and liquidity management systems of the venture capital management companies under Law 22/2014, on Venture Capital Entities

Risk and liquidity management systems of the venture capital management companies under Law 22/2014, on Venture Capital Entities

Abstract:

New Law 22/2014 on Venture Capital Entities regulates, within Chapter II (which is devoted to the activity regime of the management companies) and in accordance with Directive 2011/61/UE (which is transposed through this law ), that all management companies must implement adequate risk management systems (including to establish a maximum level of leverage) and liquidity management systems for each of the venture capital entities that they manage. However, the most detailed regulation of these matters is contained in the Commission Delegated Regulation (UE) nº 231/2012 of 19 December 2012.
As is explained throughout this article, the ratio legis of the new law is to avoid that unforeseen or avoidable risks materialize which may affect the shareholders or participants of the venture capital entities, as a result of (i) the excessive risk assumed in comparison with the level of risk initially disclosed to the participants, (ii) the potential conflicts of interests, (iii) an excessive leverage or (iv) the illiquidity of the assets in relation to the level of leverage. The materialization of such risks could contribute to the build-up of a systemic risk in the financial system and to market disorders.

Keywords: Law 22/2014 / private equity / Venture Capital Institutions / risk management / liquidity management / leverage / stress tests / conflicts of interests / systemic risk / Commission Delegated Regulatio