Abolishment of investment limits for qualified investor funds

Since its adoption, Governmental Decree No. 243/2013 Coll., on investing of investment funds and the techniques of their management, has unreasonably restricted the investment strategies of qualified investor funds. Under the existing legal regulation, funds have not been allowed to invest more than 35% of the fund capital into a single asset. Diversification rules thus prevented the establishment of single-asset funds and placed high demands on the planning of asset structures to comply with the statutory requirements over the entire existence of a fund. Not even numerous complicated exceptions, based, for instance, on the number of investors or the fund’s capital, had the desired effect of providing the flexibility necessary to carry out the wide range of investment objectives held by qualified investor funds. What’s more, the interpretation and application of individual exceptions has not always been unambiguous. Also, the assumption that asset diversification is the only model that will protect investors has since been overcome in practice.

The amendment to the decree abolishes all diversification rules for qualified investor funds. From now on, investment limits will only be regulated by the fund’s statutes. As a number of qualified investor funds incorporated the decree’s provisions concerning asset structure into their statutes, fund managers will now have to change the statutes if they want to make a full use of the new opportunities. Such a change will not be subject to prior approval by the Czech National Bank, as is the case for collective investment funds intended for retail investors.

For qualified investor funds whose managers are authorized pursuant to AIFMD, the decree still stipulates qualitative requirements as to using leverage on the fund’s account and providing investment instruments from the fund’s assets as collateral or another form of security.