Author: Daniel Kuchta
Source: www.investujeme.cz, October 13th, 2008, http://www.investujeme.cz/clanky/fondy-kvalifikovanych-investoru-prilezitost-pro-majetne/
Qualified Investors´ Funds belong to the so-called group of special funds which do not meet the requirements of the European standard UCITS so they are regulated solely by local laws. They are disadvantaged, therefore, by the impossibility of using a single licence for distribution abroad and they cannot be offered within the EU without a specific licence from the foreign regulatory body.
The advantage to the founder may just be the very fact that these funds are not subject to the restrictions of the rules for establishing standard collective investment funds (CIFs), thereby allowing the founder greater freedom in creating the investment strategy. CIFs are not limited by the amount and type of investment tools, thereby presenting their investors with much more attractive products and conditions than standard Unit Trust Funds. Apart from the composition of the portfolio, which is more interesting, the matter of taxation in particular has a great appeal to the founders of a Qualified Investors´ Fund. The tax rate for Qualified Investors´ Funds is 5 %, which, this year, is 16 % less than for any other form of corporate body.
Regulation is important
Even though a lot of people believe that the CIF has a similar role to the one that hedge funds fulfil abroad (they are best known for their almost zero level of regulation) and they are not subject to such strict attention from regulatory bodies, this is not actually the case. CIFs are quite strictly regulated by the Czech National Bank (CNB). Apart from the difficult licensing procedure even prior to starting operations, the CIF has to publish an economy report every six months. The Fund depositary also acts as a certain form of regulation since it monitors the management of fund assets to ensure it is in accordance with the fund status and it also grants approval for the management of assets that may not be kept with the depositary (such as fixed assets).
The fund strategy, despite a certain freedom in creating the portfolio, has to be contained within the fund status and quite precisely specified. Diversification of assets, therefore, plays a very important role in the QIF as well and funds are not permitted to invest all the resources into one single asset. A precise and high quality fund status is an essential requirement for gaining a licence from the regulatory body and it is serves as a measure for investors reviewing their investment in the fund.
Wealthy only
It has already been said that the CIFs are not intended as offerings to the general public, but mainly to institutional investors (banks, pension funds, insurance companies, etc.) Natural persons who declare themselves experienced and qualified investors are, however, permitted to invest in this type of funds. Details on the methods to be used for verification of the investor’s experience with investing in assets which the fund invests in (besides the usual stocks, this can also be properties), have to be stated in the fund status. The funds alone can also specify who is allowed to invest in the particular fund and therefore the option exists for creating funds intended primarily for a small circle of investors (e.g. banks only, etc.).
The minimum investment in the CIF is CZK one million and the maximum number of investors is limited to 100. The funds can be established for a maximum period of 10 years (the reason, according to the CNB, is to ensure liquidity of investor resources); this period may, however, be extended by merging with another, newer fund. The core capital of each fund has to reach at least CZK 50 million, within one year of the date of granting the licence.
Qualified Investors´ Funds may be established as investment funds or unit trusts funds. Investment funds are separate corporate bodies, incorporate companies; their sole line of business has to be the collective investment. They deal in their own name, on their own account, and their rights and duties arise from legal acts directly to the investment fund. Their financial resources are gained by the issue of stocks. After their purchase, the investor becomes the company stockholder. The investor can retrieve his/her resources by means of selling the stock or by his/her share of the fund asset on liquidation after the expiry of the period for which the fund was created. The profit of the fund can be then distributed in the form of a dividend.
Investment funds can be self-governing, where decisions on investing are made by a board of directors, or funds administered by the receiver (for example investment companies), where the disadvantage is, for example, the administration fee. On the other hand, self-governing funds are subject to much higher requirements prior to obtaining the licence.
Unit trusts funds are not separate corporate bodies and they are administered by the investment companies. They can operate both on an open-end and closed-end basis. The number of allotment certificates in the open-end unit trust funds is not restricted and the investment company is obliged to repurchase the allotment certificates. In closed-end unit trust funds, the investor receives his/her resources at the liquidation of the fund; the investment company is not obliged to repurchase the allotment certificates.
In the Czech Republic, generally it is qualified investors´ investment funds which are being established, with over ten of them already in the market. The precise number is not known because, in addition to establishment of a fund, the act of licence withdrawal is quite common due to failure to comply with the basic requirement of core capital to the value of CZK 50 million within one year of the fund’s operation. It is very difficult to gain any information about self-governing funds because they may not be on offer to the public.
Real estates are the most popular.
The majority of domestic CIFs focus, despite the evident loss of interest on the part of investors, on investment in real estates. The most recent addition is the self-governing investment fund Arca Capital CEE, which will direct its resources, apart from on real estates, mostly towards private equity investments within the area of Central and Eastern Europe. The fund is managed by Arca Capital private equity and the minimum amount of investment to any one project has been set at 35% of the core capital and the minimum investment is CZK 5 million. Real estates are the subject of investment from two new funds of FINEP Holding; their administration is provided by CEE Fund Management. Vynosovy investicny fond will invest in the project of managerial and start-up-living and the main source of income will be rental. Pozemkovy investicny fond will focus the investment resources on estates.
CSOB Property Fund, managed by CSOB Asset Management, focuses on offices, shopping and industrial parks or logistics centres in important cities of Central and Eastern Europe. The funds Harmonie and Prague of Amista Investment Company invest mainly in real estates in the Stredocesky region, Prague and its vicinity respectively. Amista also manages MAO investicny fond; an investment fund which invests in real estates in Prague, Kladno and the surroundings. Amista, besides investment funds, also manages three open-ended mutual trust funds of qualified investors: Moravsky pozemkovy fond open-ended mutual trust fund (Moravia region), Ceský a slovensky realitny fond open-ended mutual trust fund (the Czech Republic and Slovakia) and Buenavista pozemkovy fond open-ended mutual trust fund (Karlovarsky region). Another fund investing in real estates is the self-governing CFQI investicny fond investment fund. Fund Orion 001, managed by Orion Capital Management, invests in several real estates in the Czech Republic, including the Public Private Partnership sector. The same company is also preparing the fund entitled Orion Medialny investicny fond, which should finance audio-visual projects with a focus on the production and distribution of English-language international films and TV programmes created by first-class producers from the USA, Canada and Europe. The fund has already been granted a licence from the CNB, but it has not yet engaged in any activity.
Protos Fund, established and managed by IKL of Komercna banka, invests in bond issues and liabilities with a minimum credit risk, issued by the governments of European Union countries and denominated in CZK.
