Technical amendment to Act on Investment Companies and Investment Funds
At the beginning of August, the Ministry of Finance submitted to the government a draft amendment to the Act on Investment Companies and Investment Funds. The ministry thus responds to the requirements of capital market participants (changes concerning entities under Section 15, SICAVs) and regulates some technical and interpretation issues that arose in the previous transpositions of EU directives. At the same time, it aims to make some forms of investment funds more attractive. The proposed effective date is 1 July 2024.
Stricter regulation of asset managers under Section 15
The amendment introduces the stricter regulation of managers of funds governed by Section 15 of the Act, as this manner of investing has become rather popular with the public, which thus needs to be better protected and informed.
Asset management comparable to management of an investment fund allows investors to invest in less traditional, typically riskier projects and managers to manage assets under more relaxed regulatory conditions. However, these managers do not have CNB licences, and their asset management activities are not supervised by the CNB.
Under the amendment, the manager’s name will have to include the words ‘venture capital entity’, and the use of the word ‘fund’ in their name will be prohibited. The amendment extends the information obligations: before concluding a contract, investors must be informed about the risk of the investment, the amount of the remuneration, the investment horizon, the investment strategy, and the fact that the asset manager is not subject to CNB supervision.
The amendment further restricts the range of potential investors: it stipulates a minimum investment of EUR 125,000 and the obligation to fill in an investment questionnaire to obtain information about the investor's financial background, investment objectives, knowledge in and experience with investments. However, the minimum investment threshold may not be met where the manager manages assets for up to 20 investors; this is intended in particular for family-type investments.
Making investment funds more attractive
The amendment aims to encourage establishing the types of investment funds that are currently not very common, such as closed-end joint-stock companies or limited partnerships for investment certificates.
Sub-funds not only for SICAVs
Current legislation allows the establishment of sub-funds only for joint-stock companies with variable registered capital (SICAV). Under the amendment, they may also be established by limited partnerships for investment certificates and closed-end joint-stock companies as well.
SICAF
If an investment fund is established as a closed-end joint-stock company (as opposed to a SICAV), the fund's business name may include the designation ‘investment fund with fixed capital’ or the abbreviation ‘SICAF’, making it easier to recognise, especially for foreign investors.
Limited partnership for investment certificates
For limited partnerships for investment certificates, the amendment relaxes the otherwise rather strict rules for profit distribution as stipulated by the Corporations Act. The memorandum of association may provide for a different distribution of profit and loss, i.e., for example, that the profit or loss will be borne solely by the company and not by the general partner.