A GUIDE TO QUALIFIED INVESTOR FUNDS
Qualified Investor Funds (hereinafter “QIFS“) are governed by Act No. 240/2013 Coll., on Investment Companies and Investment Funds (hereinafter the “Act“), which regulates the functioning of fund managers and administrator sand defines the legal entity of the fund, minimum number of investors, requirements for a qualified investor, etc.
QIFs are intended for specific groups of investors, defined by the Act as: (1) institutional investors (state bodies, banks, insurance companies, etc.); and (2) retail investors, who make a declaration that they are aware of the investment risks of a given fund and wherein the amount of paid-in capital or paid-in investment levels are at least:
- € 125,000, or
- CZK 1,000,000 if the manager of the fund, after obtaining all necessary information from the retail investor, confirms in writing that the investment product is in agreement with the financial situation, investment objectives and professional knowledge and skills of the investor.
Investment in QIFs requires a minimum of two qualified investors per each fund.
The funds of qualified investors are supervised and regulated by Czech National Bank. The protection of investors is also arranged by depository bank. Besides these institutional control mechanisms there exists also internal audit and compliance control.
Therefore, the funds of qualified investors are transparent, effective and well controlled instrument for investors who have common investment target.
A QIF is a type of investment fund that is regulated by the Czech National Bank (CNB). Apart from the CNB, other banks permitted to act as depositories can provide protection for the investor. Except for the above-mentioned institutional control mechanisms, the control of an internal auditor and/or compliance officer must be secured to strengthen the protection.
QIFs are a transparent, effective and well-regulated vehicle for investors sharing a specific goal.
The most common QIF investment fund entity, among a wide variety of corporate structures, is a variable capital investment company, known as Societé d´investissement á capital variable (“SICAV”). A SICAV is a specific form of traditional joint-stock company set up to accommodate the requirements of fund investments. A SICAV issues two types of shares: founder shares and investor shares. Founder shares are issued to the originators of the company and are associated with shareholder voting. The holders of founder shares are involved in corporate governance and investment strategies. The holders of investor shares, to the contrary, have no voting power but the liquidity of their shares is high, as the shares can be redeemed. Hence, SICAVs combine the benefits of a common corporation and a flexible investment.
SICAVs can create several sub-funds in order to perform various investment strategies. This potentially reduces the cost of administration; costs related to the issuing of investor shares and the SICAV capital demands, as the capital demands include the demands of the SICAV but do not combine all of the individual sub-funds. The assets and liabilities of a sub-fund are held separately from the SICAV’s capital. SICAVs include the intention to create sub-funds in the company statutes. Each sub-fund can have an independent status. The shares issued under a sub-fund carry the right to participate in the profit or the residual value on dissolution, only with regard to the particular sub-fund and not the entire SICAV.
The bodies governing and operating a SICAV differ from those in regular joint-stock companies. Unlike the Supervisory Board and Board of Directors in corporations, the Management Board is responsible for the management and control of the given SICAV.
The share capital is registered with the Commerical Register to the value of the founders’ shares, not the investors’. Hence, the amount of capital obtained by the issue of investor shares does not affect the value of the registered share capital. In addition, investor shares do not use general procedures to increase and decrease the share capital, which makes the whole process easier, as it does not require compliance with strict formal rules. SICAVs have a duty to publicly announce the subscription of their shares.
These funds requires certain service providers; a Manager, Administrator and Custodian.
According to the Act, the Manager operates as a statutory director. The manager and administrator of an investment management company are regulated by a licence issued by the Czech National Bank. The Manager is required to manage the assets of the fund, including investments within the fund, setting investment plans and strategies and assessing risk profiles.
The Administrator is responsible for all activities that are related to the process of running the investment, such as the purchase and issuing of shares, calculations of the net asset value, bookkeeping, pricing of assets, monitoring compliance with the law, internal auditing, reporting to investors and other subjects (Czech National Bank, Tax Office, Custody, etc.), complaint procedures, responding to inquiries, and payment of taxes, duties, expenses and other financial obligations.
The main task of the Custodian is to protect and safeguard the fund’s assets. The Custodian is a regulated financial institution (bank) or another entity that holds a licence issued by the Czech National Bank permitting it to conduct this activity. The Custodian represents a control body of the fund and monitors the propriety and rightfulness of all transactions and operates on the basis of a custodial service contract. The Custodian oversees shareholders’ transactions, sales and purchases, issuing and trading of assets, tracking of shareholder values, etc. and closely cooperates with the Manager and Administrator of the fund.