The Ministry of Finance has prepared the draft law on alternative investment funds, which will enable local companies and natural persons to invest in startups and innovations.
Small and medium companies in Serbia, which are estimated to lack around a billion euros of capital, will soon have additional sources of finance, aside from banking loans. In fact, the domestic corporate, private and natural persons' capital will be eligible for investments in small and medium enterprises through venture capital funds.
The draft law on alternative investment funds opens the possibility of registering venture capital funds in Serbia.
The Ministry of Finance, which has prepared the law with the Securities Commission, emphasizes that those are meant for professional and institutional investors, and semi-professional investors will be able to invest as well, investing a one-off sum of EUR 50,000 initially, and then being assessed for knowledge and experience.
– The regulations concerning small investors, public offers and cross-border carrying of activities of companies for managing alternative investment funds will come into effect with a delay – the ministry says.
One of the reasons for preparing the law, they say, is the need to provide a greater degree of protection in the case of risky investments by alternative investment funds and a more detailed defining of the rules applicable to companies for managing alternative investment funds.
The draft law therefore proscribes organizational requirements pertaining to the controlling companies and the managing persons, which entail rules of business conduct, such as managing, the policy of compensations, risk and solvency management, valuing rules, delegation of business processes and the activities and responsibilities of depositors.
– At the same time transparency requirements will include the obligation of reporting by persons who manage alternative funds to investors, entailing a clear description of investment policy, including the description of the types of property in which investments will be made, buyout rules, valuing, the holding of property, administration, risk management policy, prices, costs and fees related to the investment – the ministry says.
Companies which manage these funds will be obliged to announce annual investment strategies and the fund's goals when acquiring control over companies, as well as general information about the company's profitability after acquiring control.
This law differentiates between open alternative investment funds, where stakes can be bought out at the member's or the investor's request, and closed alternative investment funds, where it's not possible to ask for a stake buyout from the fund itself.
– The new feature is that it will be possible to found an alternative investment fund with the characteristics of a legal entity with internal management, which will not have to have a managing company. However, the law will also pertain to the management of those funds – the ministry says.
Considering the current state of the local market, the draft law proscribes that, in the period until the accession to the European Union, the depositor (instead of custody banks and custody service) can only be a crediting institution, that is, a bank, and that it will be possible to delegate the jobs of keeping the property to local and foreign banks if the requirements are met and with the previous authorization by the Securities Commission.
– Furthermore, another reason for adopting this law is to enable micro, small and medium enterprises to access additional sources of finance for the further development of their operations – the Ministry of Finance says.
Igor Zivkovski, the president of the Legal Committee of the Foreign Investors Council, clarifies that this is the first time that alternative investment funds which collect money from investors in order to invest it in other forms of property are introduced to Serbia's legal system. Alternative investment funds do not require working permits under the law which regulates the founding and the operations of open investment funds with a public offer.
Our interviewee notes that alternative funds will be enabled for the first time to be registered as such, and not as limited liability companies, as has been the case so far.
– An especially interesting legal solution in the new law is the institute of the closed alternative investment fund, which has the characteristics of a legal entity with internal management. It is an investment fund which manages its property itself, not through a company, while at the same time being a company for management – Zivkovski says.
Harmonized with EU Directive
The law on alternative investment funds is largely harmonized with the Directive of the European Union, which pertains to managing alternative investment funds, the Ministry of Finance says, but it requires the Law on Investment Funds to be amended so as to regulate only open investment funds with a public offer which invest in transferable securities and companies for managing these funds. Aside from this, a new law on open investment funds with a public offer will be prepared.