Capital markets and structured investments

Securities investment funds

Real Estate investment funds

Venture Capital investment funds

Unit trust

As noted above, the most common fund structure in Australia is a unit trust, where each investor holds units representing a beneficial interest in the assets of the fund.

Unit trusts are usually managed so they can be treated as ‘flow through’ vehicles for tax purposes (similar to a partnership) so that the fund itself is not subject to taxation. Investors are taxed on their share of the net income and capital gains earned by the fund.

Certain units trusts that are managed investment schemes for Corporations Act 2001 (Cth) purposes may also qualify for tax concessions as a managed investment trust.

Collective investment vehicles

The Australian Government has been working on the introduction of an Australian collective investment vehicle (CIV) regime, which will introduce two alternatives to the current Australian unit trust structure. The new vehicles will be a corporate CIV and a limited partnership CIV, which will be similar to the equivalent structures which are commonly used in foreign jurisdictions.

The Australian Government is still conducting a consultation process (which began in 2017) with the most recent pieces of draft legislation outlining the proposed regime released in January 2019.

Asia Region Funds Passport

The Asia Region Funds Passport was implemented in Australia in 2018 with the Corporations Amendment (Asia Region Funds Passport) Act 2018 (Cth). It allows Australian fund managers to offer interests in qualifying funds to investors across multiple participating economies in the Asian region with limited additional regulatory requirements. Similarly, fund managers in other participating economies will be able to market their qualifying funds to Australian investors using the more streamlined regulatory process.

However, the uptake of the Asia Region Funds Passport will largely depend on how the corresponding tax reforms and the CIV regime will look once enacted by Parliament.

They can (irrespective of legal form) take a closed ended or open ended form, so there may be four basic forms (either UCITS or AIFs):

• contractual funds with variable capital;
• contractual funds with fixed capital;
• companies with variable capital (SICAVs); and
• companies with fixed capital (SICAFs).

Under Brazilian law, funds are considered to be as an ownership right shared by more than one person or legal entity (referred to under Brazilian law as condominiums), with no legal personality. Usually, they are established either as open ended condominiums (in which an investor may require the amortization of its quotas at any time, as provided for the in the rules of the fund) or closed ended funds (in which the quotas are only amortized by the end of the life of the fund).

Common forms of funds include:

• Open-ended retail funds – are also referred to as mutual funds and are pooled funds that generally issue securities or units continuously.
• Closed-ended retail funds – are also referred to as non-redeemable investment funds. These typically raise a fixed amount of capital through a public offering and many are listed on capital markets.

Funds in Chile are not corporations, but, in general terms, each fund is a separate pool of assets destined exclusively to be invested in securities or assets authorized by law.

The ownership of a fund is not represented by shares (as in LPs or LLCs), but by ‘quotas’ and investors are commonly referred to as ‘quota holders’.

Each fund must be managed by a separate corporation called an Administradora, or fund manager, which is registered and supervised by the CMF. The fund manager has the exclusive responsibility for a fund's administration.

Please note that the fund manager is quite different from a general partner, as it only manages but usually does not own any quotas of the fund.

Fund managers must be incorporated as stock corporations (Sociedad Anónima), which, except for private investment fund managers, should be registered and subject to the supervision of the CMF. Private investment funds are managed by special purpose stock corporations which must only be registered with the CMF in a special registry of reporting entities.

As explained, common types of fund structures other than private investment funds include mutual funds, public investment funds, foreign capital investment funds and foreign risk capital investment funds. Hedge funds are not explicitly regulated, and may adopt one of the aforementioned structures depending on its particular characteristics.

Each fund structure has its own restrictions and limits, but they are all subject to registration and supervision by the CMF. In general terms, they differ on the rules applicable to redemption of the investment and permitted investments. They can all be listed on the local stock exchanges or traded OTC in secondary markets. All of the above funds must be managed by a Fund Manager.

Pooled funds

Decree 2555 sets forth the regulation of pooled funds (Carteras Colectivas) as financial vehicles created for raising and managing money or other assets from third parties to achieve collective economic results. These vehicles may only be managed by a fiduciary entity (Sociedad Fiduciaria), authorized brokers (Comisionista de Bolsa) or investment management companies (Sociedad Administradora de Inversión), which are responsible for the investments and the back-office activities on behalf of investors.

Decree 2555 establishes four different kinds of pooled funds:

• open-end, in which the participation units may be redeemed before the expiration of the fund's term;
• close-end, in which the units can only be redeemed upon expiration of the fund's term;
• staggered pooled funds through which placement rules define different terms for the redemption of the units before the expiration of the fund's term; and
• exchange traded funds.

Pooled funds are subject to the supervision and special regulation of the Superintendency of Finance and their shares are automatically registered with the National Registry for Securities and Issuers (RNVE).

Private equity funds

Private equity funds (PEFs) are special purpose vehicles, which are close-end funds (Carteras Colectivas Cerradas) that cannot invest more than one third of the fund's assets in publicly traded securities registered with the RNVE.

Venture capital

The venture capital industry is currently organized as a high-risk investment made through PEF, under the management of general partners, and with the concourse of angel and institutional investors.

Common forms of funds include:

• funds of collective investment, which can only be: common funds or joint-stock companies. They are divided into standard funds and special funds as well as open-ended and closed-ended funds;
• qualified investors structure, which can only be: common funds, trust funds, limited partnerships, limited liability companies, joint-stock companies or cooperatives; and
• foreign investment funds.

There are two main categories of funds: Undertakings for Collective Investments in Transferable Securities (UCITS) funds (common funds) and non-UCITS funds (special common funds and other alternative investment funds).

Risk in a special common fund does not need to be diversified as broadly as with UCITS funds. A special common fund is also an alternative investment fund as provided in the Act on Alternative Investment Fund Managers.

Common (UCITS) funds

Common funds are regulated by the Act on Mutual Funds, implementing the UCITS directive, which specifies the eligible investment types and the required diversification between investments in Chapter 11 of the Act. The Finnish Financial Supervisory Authority (FIN-FSA) approves the fund rules.

Special common (Non-UCITS) funds and other alternative investment funds

Special common funds are non-UCITS, alternative investment funds deviating from the principle of diversification of risk pursuant to Chapter 13 of the Mutual Funds Act. If the units of a special mutual fund shall be offered to non-professional clients, the risk must be diversified (but to a lesser amount than in an UCITS fund) and the rules of the fund must indicate the deviations from the principles of Chapter 13 of the MFA. The rules regulating the subscription and redemption of the units in a special common fund may also deviate from those of a UCITS fund. The name of the fund must indicate that it is a non-UCITS fund. The Finnish Financial Supervisory Auhority has to be notified of the rules of a special common fund.

The investment operations of other alternative investment funds are not regulated, but the Act on Alternative Investment Fund Managers specifies the information that the funds must provide on themselves. Subject to certain exceptions as to e.g. family offices and business angel investors, alternative investment funds may be marketed to non-professional investors only, if the fund manager has been authorized and rules and a key investor information document (KIID) have been prepared for the fund. The FIN-FSA does not approve the rules of alternative investment funds.

Several fund structures are listed by the Monetary and Financial Code (Code monétaire et financier):

• retail investment funds;
• funds of alternative funds;
• private equity funds;
• employee investment undertakings;
• real estate collective investment undertakings (OPCI);
• real estate investment companies (SCPI);
• forestry investment companies (SEF);
• closed-ended investment companies (SICAF);
• professional investment funds (FPS which take the form of (i) mutual fund (fonds commun de placement) or (ii) société en commandite simple (SLP));
• professional private equity funds;
• professional real estate collective investment undertakings; and
• financing entities, which includes securitisation entities and specialised financing entities (organismes de financement spécialisés).

These funds generally take the form of investment companies with variable capital or mutual fund (fonds commun de placement) with no legal personality.

Others fund structures (Autres FIA) are not listed by the Monetary and Financial Code (Code monétaire et financier) and fall within the scope of AIF by meeting the criteria of the definition referred to in Article 3 of the AIFM Directive.

Common form of funds include:

• Undertakings for Collective Investments in Transferrable Securities (UCITS); and
• Alternative Investment Funds (AIFs).

Collective investment schemes make up a substantial proportion of funds. 

There has been a significant growth of pension funds since the enactment of the National Pensions Act, 2008 mandating that a part of pension contributions be paid into privately managed pension funds. 

An investment fund may be established:

• in the form of private or public investment funds, depending on the mode of placing investment units on the market (form of operation);
• based on the sphere of potential investors, in the form of an investment fund offered to professional or retail investors (mode of marketing);
• in the form of open-ended or closed-ended investment funds, according to the type of redemption of their investment units (type of investment fund);
• for a fixed or unfixed term (maturity of the investment fund);
• in the form of securities fund, real estate fund, venture capital fund or private equity fund, based on the primary assets in which the investment fund may invest (type of primary category of assets); and
• on the basis of harmonization as Undertakings for Collective Investment in Transferable Securities (UCITS) or Alternative Investment Fund (AIF) (type of harmonization).

Ireland as a domicile provides a number of potential structuring options for funds, which can be broadly categorized as regulated by the Central Bank of Ireland or unregulated.

Regulated Fund Structures

Broadly speaking, each of the regulated fund structures below may be established as either an Undertaking for Collective Investment in Transferable Securities (UCITS), pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011, as amended (the UCITS Regulations) or as an Alternative Investment Fund (AIF), pursuant to the EU (Alternative Investment Fund Managers) Regulations 2013, as amended (the AIFM Regulations), which transposed the Alternative Investment Fund Managers Directive (AIFMD) into Irish law. AIFs are authorized by the Central Bank of Ireland in one of two categories – either as a Retail Investor AIF (RIAIF), which may be marketed to retail investors, or as a Qualifying Investor AIF (QIAIF), which may be marketed to qualifying investors.

An application for authorization of a UCITS or an AIF must be submitted for review and approval to the Central Bank of Ireland. It needs to be accompanied by certain information (including the relevant Central Bank of Ireland application forms, the draft fund documentation and any draft letters relevant to the application).

The main types of regulated fund structures in Ireland are set out below. Other than the ILP, which can only be used for AIFs, each of these fund structures are suitable for UCITS and AIFs.

(i) The ICAV

The ICAV, established in 2015, is quickly becoming the vehicle of choice for Irish funds. It is an Irish corporate investment fund which was introduced pursuant to the Irish Collective Asset Management Act 2015 to meet the needs of the global funds industry. Since its creation, the ICAV has replaced the Investment Company as the most commonly used structure for newly established funds. The ICAV is a tailored corporate structure that is specifically designed to give more administrative flexibility than an Investment Company.

An ICAV may be established as an umbrella structure with a number of sub-funds and share classes. In an important innovation, it is possible to prepare accounts per sub-fund. It is not subject to those aspects of company law which are irrelevant to, or inappropriate for, collective investment schemes (thereby helping to reduce administrative burden and costs). Establishing an ICAV involves a two-stage process. The ICAV must first be registered with the Central Bank of Ireland and then authorized as either a UCITS fund pursuant to the UCITS Regulations or an AIF pursuant to the AIFM Regulations. In addition, and unlike Investment Companies, the ICAV can elect to be treated as a tax transparent entity for US federal income tax purposes. UCITS and AIFs that are established in Ireland as Investment Companies can convert into ICAVs, in accordance with a conversion process provided for by the Central Bank of Ireland. The ICAV legislation also provides for ICAV mergers and for the migration of funds domiciled outside Ireland into Ireland as ICAVs by continuation.

(ii) The Investment Company

An Investment Company is established as a public limited company under the Companies Acts 2014. This entity has a separate legal identity and there is no recourse to its shareholders. However, there is a statutory requirement for an investment company to spread risk, under Part 24 of the Companies Act 2014.

(iii) The Unit Trust

A Unit Trust is not a separate legal entity but rather a contractual fund structure constituted by a trust deed between a trustee and a management company. With this structure, the trustee or its appointed nominee acts as legal owner of the fund’s assets. As the Unit Trust does not have a separate legal personality, it cannot contract for itself.

This is a common form of fund vehicle, available for both UCITS and AIFs. While this vehicle is often used by fund managers who are marketing a fund to Irish, UK, US or Japanese investors (as many civil law jurisdictions do not recognize the trust structure), it is not typically used by promoters who wish to sell their funds to continental European investors (who have traditionally preferred the investment company structure).

(iv) Investment Limited Partnerships (ILPs)

An ILP is established pursuant to the Investment Limited Partnership Act 1994. This structure has not proven popular in Ireland and has been used infrequently. It is available only for AIFs. An ILP is a partnership and as with a Unit Trust, an ILP does not have an independent legal existence. It has one or more limited partners (similar to shareholders in an Investment Company or ICAV, or a unitholder in a Unit Trust), and a general partner that can enter into contracts on behalf of the ILP. The ILP is recognized under the laws of a number of countries, including the US, as a tax-transparent entity. In June 2019, the Irish government published the Investment Limited Partnership (Amendment) Bill 2019, which proposes to reform and modernize the legislation in relation to ILPs, bringing the regime in line with those in other leading jurisdictions and making Ireland an attractive domicile for the establishment of ILPs. The changes proposed include the establishment of umbrella ILPs and clarifying and expanding safe harbors to allow limited partners to undertake certain actions without being deemed to take part in the management of ILPs.

(v) Common Contractual Funds (CCFs)

A CCF, similar to a Unit Trust and investment limited partnership, does not have a separate legal existence. It is a contractual arrangement established under a deed of constitution, giving investors the rights of co-owners of the assets of the CCF. As co-owners, each investor in a CCF is deemed to hold an undivided co-ownership interest in the assets of the CCF, as a tenant in common with other investors.

A CCF is essentially a facility whereby investors may pool their resources to enable them to be commonly managed for investment purposes provided certain investor criterion are met. Importantly, the CCF is treated as being transparent for Irish tax purposes as long as all of its investors are institutional investors.

Unregulated Fund Structures

(i) Limited partnerships (LPs)

A limited partnership established pursuant to the Limited Partnership Act 1907 is a popular structure for unregulated investment funds in Ireland. An LP is a partnership between one or more general partners and one or more limited partners, which is constituted by a partnership agreement. To have the benefit of limited liability, only the general partner is permitted to engage in the management of the business of the partnership, or to contractually bind the partnership. LPs are tax transparent and do not have separate legal personality.

There is a general limit of 20 partners in a limited partnership or 50 where the partnership is formed “for the purpose of, and whose main business consists of, the provision of investment and loan finance and ancillary facilities and services to persons engaged in industrial or commercial activities.” Limited partnerships are commonly used on financing transactions. They often sit under regulated fund structures (please see discussion on ICAVs above). They are frequently used by promoters of Irish regulated funds as they are treated as “look through” entities from a tax perspective. The partners of the limited partnership are instead subject to tax on their profit share, as provided for in the partnership deed.

Another reason limited partnerships are used in these structures is that they help create a separate security package in a sub-fund structure where limited recourse financing is being provided. Multiple limited partnerships can be used under one sub-fund, thus creating a separate security package for lenders and reducing the set-up and ongoing costs of multiple sub-funds.

(ii) Section 110 companies

A section 110 company is an Irish resident special purpose vehicle that holds and/or manages what are known as “qualifying assets” (as defined in the Taxes Consolidation Act 1997). Qualifying assets include a wide range of financial assets, commodities and plant and machinery.

The main benefit of a Section 110 company is that it is generally entitled to claim a tax deduction for all of its financing expenses, including (subject to some conditions) its profit-linked financing expenses. Therefore, it is in general possible to ensure that a section 110 company can acquire assets using debt financing on a tax neutral basis by ensuring that the section 110 company pays out all of its return in respect of those assets as tax deductible interest payments to lenders and investors.

Section 110 companies are widely used by international lenders, asset managers and investment funds for a variety of transactions, including, securitizations, CLOs, CDOs, bond issuances in the capital markets and as onshore investment platforms. They are also frequently used to hold and lease qualifying plant and machinery, such as aviation and shipping assets. Ireland is regarded as a center of excellence for aircraft financing and leasing and Section 110 companies are frequently used for structuring on such transactions.

In addition, a Section 110 company qualifies for the benefits of Ireland’s double tax treaty network which should reduce or eliminate withholding taxes on income flows and capital gains in treaty jurisdictions.

Different categories of funds may be identified, based, inter alia, on the:

• subscription and redemption modalities adopted (open-ended or closed-ended funds);
• types of subscribers addressed (retail or reserved);
• risk level involved (recourse to leverage on a substantial basis or not); and
• relevant investments to be made (real estate funds, private equity funds, master-feeder structures, fund of funds etc).

In this context, the most common investment structures, as anticipated, can be divided between:

• investment vehicles having a contractual form (ie investment funds, either qualifying as Undertakings for Collective Investment in Transferable Securities (UCITS) or alternative investment funds (AIFs)), established and managed by a manager as a segregated pool of assets divided into units and collected, through one or more issues of units, among a plurality of investors, managed as a whole in the interest of (and independently from) the unit holders; and
• corporate vehicles (ie Società di Investimento a Capitale Variabile (SICAV) and Società di Investimento a Capitale Fisso (SICAF), depending on the open-ended or closed-ended nature, either qualifying as UCITS or AIFs) which may be both self-managed or externally managed by an asset management company.

Please note that some common characteristics may be identified, such as the basic presence of a plurality of investors, the establishment of a predetermined investment policy to be followed, certain management independence and autonomy principles and the general pooling of investors contributions, profits and incomes.

Two types of UCITS have been authorized on the Regional Financial Market.

Common forms of funds include:

• open-ended, Investment Companies with Variable Capital, ICVCs (SICAV in French);
• mutual investment funds (Fond Commun de Placement, FCP);
• qualified investor structures that invest in products such as corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

Common fund structures include:

• a partnership created by a partnership contract under the Civil Code;
• a partnership created by an anonymous partnership agreements under the Commercial Code;
• an investment limited partnership created by an investment limited partnership agreement under the Investment Limited Partnership Act; and
• a limited liability partnership created by a limited liability partnership agreement under the Limited Liability Partnership Act.

Common forms of funds include:

• Specialized Investment Funds which may qualify as Alternative Investment Funds (AIF);
• Undertakings for Collective Investments in Transferable Securities;
• Undertakings for Collective Investments pursuant to part II of the Luxembourg law of 17 December 2010 which may qualify as AIF;
• Reserved Alternative Investment Funds;
• companies investing in risk capital (these companies are not considered to be investment funds as they are not subject to diversification rules); and
• partnerships which may qyalify as AIF.

Common forms of funds include: 

• open-ended funds;
• closed-end funds;
• retail and non-retail funds;
• professional collective investment schemes;
• specialized collective investment schemes (investing in real estate, derivatives, commodities or any other product authorized by the Financial Services Commission); and
• expert funds available only to expert investors.

The most popular types of investment funds in Mexico are:

• the variable yield mutual fund or equity mutual fund (Fondo de Inversión de Renta Variable); and
• the mutual fund for investment in debt securities or fixed fund (Fondo de Inversión en Instrumentos de Deuda).

In Morocco, investment funds belongs to one or the other of the following two categories:

Conventional vehicles

• Public Limited Company (SA);
• Joint Stock Company (SAS);
• Foreign companies (Limited Partnership, Limited Liability company and others);
• Limited partnership with shares (SCA).

Private equity: Venture Capital Investment funds (organisme de placement en capital risque) (OPCR)

• Venture Capital company (SCR);
• Venture Capital mutual funds (FCPR).

Common forms of funds include:

• open-ended and closed-ended funds;
• retail and non-retail funds (including Alternative Investment Funds (AIFs));
• Undertakings for Collective Investments in Transferrable Securities (UCITS) and non-UCITS funds; and
• qualified investor structures that invest in, for example, corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

The most common fund structures are open-ended (managed funds) and closed-ended (e.g. property funds), both retail and non-retail. Most are established as unit trusts although limited partnerships are becoming more common, particularly for property-related funds. Funds will also typically become Portfolio Investment Entities to obtain certain New Zealand tax benefits. 

Discretionary investment management services are an alternative investment mechanism whereby a financial advisor (authorized under the Financial Advisors Act 2008 or licensed under the Financial Markets Conduct Act 2013) can acquire and dispose of assets on behalf of an individual using the investor's funds in accordance with an agreed Investment Authority.

Common forms of funds include:

• Securities Funds (open-ended and closed-ended funds as well as fund-in-fund structures);
• National Funds (Norwegian fund structure according to chapter 6 in the Securities Fund Act of 2011);
• Special Funds (Norwegian fund structure according to chapter 7 in the Securities Fund Act of 2011);
• Undertakings for Collective Investments In Transferrable Securities (UCITS);
• Hedge funds, private equity funds, investment companies and real estate funds (Alternative Investment Funds (AIFs)); and
• Exchange-Traded Funds listed on the Oslo Stock Exchange.

Common forms of private pension funds include:

• capital protection – minimum investment 100% in debt securities (maximum 100% short term and 75% long term);
• capital preservation – maximum 10% in equity securities, maximum 100% in long-term debt securities; maximum 40% in short-term debt securities and maximum 10% in derivatives;
• mixed or balanced – maximum 45% in equity securities; maximum 75% in long-term debt securities; maximum 30% in short-term debt securities and maximum 20% in derivatives; and
• capital growth – maximum 80% in equity securities, maximum 70% in long-term debt securities, maximum 30% in short-term debt securities and maximum 30% in derivatives.

Common forms of investment fund include:

• investments in any kind of securities, deposits, participation certificates on mutual funds, properties, leasing over properties, factoring and bills discounting;
• open-ended and closed-ended funds;
• retail and non-retail funds (including mixed investment funds);
• Undertakings for Collective Investments in Transferrable Securities (UCITS) and non-UCITS funds; and
• qualified investor structures that invest in, for example, corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

Common forms of mutual funds include:

• debt securities mutual funds – 100% in debt securities minimum, sub-classified in very short term, short term, middle term and long term;
• moderate mixed mutual funds – 75% in debt securities minimum and 25% equity maximum;
• balanced mixed mutual funds – 50% in debt securities and 25% in equity securities as minimum investment;
• growing mixed mutual funds – 25% in debt securities and 50% in equity securities as minimum investment;
• equity mutual fund – 75% in equity as minimum investment;
• partial secured mutual fund – 75% of its capital is secured;
• fixed income secured mutual fund – 100% of its capital is secured and a minimum income;
• secured mutual fund – 100% of its capital is secured;
• structured mutual fund;
• international mutual fund – 51% in overseas securities;
• mutual fund of mutual funds – 75% in other mutual funds; and
• flexible mutual fund – any other criteria than above.

Common forms collective funds include different groups for purchasing:

• properties and mortgage payments;
• cars and trucks;
• machinery and equipment;
• motorcycles, moto-taxi and household appliances; and
• educational services.

Common forms of funds include open-ended funds, closed-ended funds, special open-ended investment funds, and alternative investment companies, Undertakings for Collective Investments in Transferrable Securities (UCITS) and non-UCITS funds.

Funds may be established as open-ended funds (with a variable number of units that may be redeemed at any time at the request of the unit holder) or closed-ended funds (with a fixed number of units).

There is a prescribed list of types of investment funds. The qualification of each fund is determined by the type of assets the fund holds, management of the fund and the characteristics of the units comprising the fund. Examples of funds include money-market funds which invest in money-market instruments and guaranteed funds in which an investor's income is guaranteed.

Common forms of funds include:

• open-ended investment companies (mutual funds);
• closed-ended investment companies (mutual funds);
• private equity funds (Act 185 Funds);
• family investment funds; and
• exempt investment companies (less than 100 securities holders or all qualified purchasers under the US Investment Company Act of 1940).

Common forms of funds include:

• Undertakings for Collective Investments In Transferable Securities;
• Alternative Investment Funds; and
• financial investment companies.

Russian law recognizes the following categories of mutual funds:

• opened mutual funds (investment units may be purchased or sold at any time);
• exchange traded mutual funds (investment units can be sold at an exchange or to the person authorized by the fund itself);
• interval mutual funds (investors may sell their investment units only in specified time periods); and
• closed mutual funds (investors cannot sell their investment units until the time period for which a fund was established expires).

An investment declaration of a joint-stock investment fund, an interval mutual fund or a closed mutual fund may also provide (or must provide in cases established by the Central Bank of the Russian Federation) that the shares/ investment units of such fund are designated for qualified investors.

Furthermore, depending on the type of investment, common fund structures also include share funds, bond funds, commingled funds, index funds and real estate funds.

Common fund structures include:

Collective investment funds under the forms of Undertaking for Collective Investment in Transferable Securities (UCITS) and Securitization Mutual Funds (Fonds Communs de Titrisation des Créances, FCTC (Instruction N° 46/2011 (Revised) Relating to the Classification and Allocation Rules Assets of Collective Investment Organizations on the Regional Financial Market of the WAMU).

UCITS take the form of:

• an open-ended, Investment Companies with Variable Capital, ICVCs (SICAV in French);
• mutual investment funds (Fond Commun de Placement, FCP) and any other collective investment vehicle approved by the Regional Council; or
• qualified investor structures that invest in products such as corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

Common forms of funds include:

• open-ended and closed-ended funds;
• retail and non-retail funds;
• collective investment schemes; and
• qualified investor structures that invest in, for example, corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

Common forms of funds include:

• open-end mutual funds/open-end foreign collective investment entities;
• close-end mutual funds/close-end foreign collective investment entities;
• standard funds (which comprise of mutual funds or investment funds with variable capital, for which funds are collected through public offer and with the purpose of investing the funds collected in transferable securities and other liquid financial assets on the basis of risk spreading);
• special funds (which comprise of mutual funds or investment funds with variable capital, for which funds are collected through public or private offer); and
• alternative investment funds, which are further divided into public special funds and special funds for qualified investors.

Asset managers and hedge funds

Collective Investment Schemes (CIS) (both Hedge Funds and Unit Trusts are classified as CISs)

CIS in securities

The portfolio consists mainly of securities and includes local funds registered with the FSCA (most collective investment schemes fall in this category).

CIS in properties

The portfolio consists mostly of shares in property investment companies or directly held property.

CIS in participatory bonds

The scheme consists mostly of participatory bonds.

Declared CIS

This is a scheme declared by the Minister of Finance as a CIS (eg hedge funds, as above).

Foreign CIS

These are foreign schemes which solicit investments from South Africans. In terms of Collective Investment Schemes Control Act (CISCA), a foreign CIS must apply to the Registrar of Collective Investment Schemes to be approved and registered.

En commandite partnerships

En commandite partnerships are regulated by the common law. The main advantage of this type of partnership is that a commanditarian, or limited partner, is not liable for the debts of the partnership in an amount greater than its investment commitment to the partnership (provided applicable common law requirements are met). The managing partner (also known as the general partner) has unlimited liability for the debts of the partnership.

Also see Entity establishment. 

Debenture funds

Investors in debenture structures subscribe for debentures issued by a company. The company lends or contributes the proceeds of such subscription to a trust. The trust appoints a hedge fund manager to manage its portfolio of assets, and vests income and gains resulting from the portfolio in the holders of the debentures (in their capacities as beneficiaries of the trust).

Private equity funds

En commandite partnerships

See above and also see Entity establishment. 

Bewind trusts

A bewind trust is a type of trust vehicle registered under the Trust Property Control Act, in terms which the applicable assets that are subject to the trust arrangements are owned by the beneficiaries of the trust, but the trustees of the trust hold and manage such assets. When a bewind trust is used for purposes of a private equity vehicle, the cash contributions of the investors to the trust form the initial assets of the trust. Each investor is a beneficiary of the trust, and the investors own the assets of the trust jointly in undivided shares in proportion to their respective contributions.

Open-ended collective investment schemes (open-ended CIS)

Open-ended CIS can have the form of investment company or investment fund (separated pool of assets with no legal personality, belonging to a number of investors, whose management and representation is carried out by a management company).

Open-ended CIS can also be of a financial nature or not, depending on the investments made. Open-ended CIS of a non-financial nature are those which invest in real estate assets.

Open-ended CIS may have restrictions in their investments. Therefore, open-ended CIS can qualify as UCITS or as non-UCITS, for the purposes of the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC). Non-UCITS open-ended CIS are also called hedge funds. Hedge funds can be pure hedge funds or funds of hedge funds.

Close-ended collective investment entities

Close-ended collective investment entities can also take the form of an investment company or an investment fund. Close-ended collective investment entities can take two forms, depending on the nature of their investments:

• venture capital entities – which have as their corporate purpose the investment in non-listed companies different from financial or real estate companies; and
• other close-ended collective investment entities – which can invest in all kind of assets, in accordance with a defined investment policy.

All close-ended collective investment entities qualify as alternative investment funds, as per the definition of the Alternative Investment Fund Managers Directive (2011/61/EU).

Common forms of funds include:

• open-ended (the most commonly used in Sweden and also what is mostly referred to as a ‘fund’) and closed-ended funds (CEFs);
• retail and non-retail funds (including Alternative Investment Funds (AIFs));
• Undertakings for Collective Investments in Transferrable Securities (UCITS) and non-UCITS funds; and
• qualified investor structures that invest in, for example, corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

Funds domiciled outside of Sweden mostly comprise of UCITS funds established in other jurisdictions.

Common forms of funds include:

• open-ended and closed-ended funds; and
• retail and non-retail funds.

Common forms of funds under Ukrainian law include:

• open-ended funds (redemption is possible at any time);
• interval funds (redemption is possible at periods set out in the prospectus); and
• closed-end types (redemption is only possible upon termination).

Depending on the duration of operation, a fund may be either fixed-term or perpetual.

Collective investment funds may also take the following forms:

• diversified funds (funds created to meet diversification criteria based on asset types);
• specialized funds (money market funds, government securities funds, bond funds, equity funds, index funds or bank metal funds);
• qualified funds (funds dealing with particular classes of assets, for example, pools of loans, real estate or securities funds); and
• non-diversified funds (any other funds which do not fall in the above categories).

Common forms of funds, some of which are further described in the UK Financial Conduct Authority Guidance on Collective Investment Schemes, include:

• open-ended (UK Authorized Unit Trusts (AUTs), Investment Companies with Variable Capital (ICVCs) and Authorized Contractual Scheme (ACSs)) and closed-ended funds;
• retail and non-retail funds (including Alternative Investment Funds (AIFs));
• Undertakings for Collective Investments in Transferrable Securities (UCITS) and non-UCITS funds; and
• qualified investor structures that invest in, for example, corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

Common forms of funds include:

• open-ended (UK Authorized Unit Trusts (AUTs), Investment Companies with Variable Capital (ICVCs) and Authorized Contractual Scheme (ACSs)) and closed-ended funds;
• retail and non-retail funds (including Alternative Investment Funds (AIFs));
• Undertakings for Collective Investments in Transferrable Securities (UCITS) and non-UCITS funds; and
• qualified investor structures that invest in, for example, corporate shares or bonds, real property, commodities (for example, precious metals) and derivatives.

 

Onshore UAE

 

The SCA Chairman Decision No. 9 of 2016 Concerning the Regulations as to Investment Funds (Investment Fund Regulations) governs the establishment, licensing and management of funds in onshore UAE. The types of funds that are able to be established under the Investment Fund Regulations include:

• public investment funds (i.e. funds which target any type of investor); and
• private investment funds (i.e. funds which target only qualified investors).

The Investment Fund Regulations provide that these public or private funds may either be "open-ended" (i.e. a fund with variable capital where the number of unitholders can increase or decrease) or "close-ended" (i.e. a fund with generally fixed capital). Under the Investment Fund Regulations:

• all funds established have corporate personality and independent financial liability; and
• all funds must be managed by a management company that is licensed in accordance with the Investment Fund Regulations, meets certain minimum capital requirements and meetins other operational requirements set out in the Investment Fund Regulations.

Dubai International Finance Centre (DIFC)

The three types of corporate entity that can be used to establish a domestic fund in the DIFC are:

• investment companies;
• investment trusts; and
• investment partnerships.

Trust structures are predominately used for property funds and investment partnerships are commonly used for private equity funds. An investment partnership is a limited partnership registered with the DIFC, comprised of general partners and limited partners. The general partner must be authorized by the Dubai Financial Services Authority (DFSA) to act as the fund manager.

The three types of fund that can be established in the DIFC are:

• public funds (including REITs);
• exempt funds; and
• qualified investor funds (QIFs).

As public funds are open to retail investors, more extensive regulatory requirements apply to these funds. Exempt funds are only open to professional clients who must make a minimum subscription of US$50,000, and cannot be offered to the public (distribution is only allowed through private placement). Private equity funds are usually exempt funds.

A QIF provides a lower cost and less regulated alternative to an exempt fund. The QIF regime is specifically targeted at sophisticated investors such as high net worth individuals and family offices. To qualify as a QIF, the fund must meet all of the following criteria (both at inception and on an ongoing basis):

• units in the QIF must only be offered by way of private placement to unit holders who meet the ‘professional client’ criteria; and
• unit holders must subscribe for at least US$500,000 of units in the QIF.

The DIFC has also adopted a special purpose company (SPC) structure through which many managers effect their private equity, real estate and alternative investments. Managers have looked to the SPC structure due to the short time frame to establish an SPC (ie one week versus potentially months to establish in other local jurisdictions), as well as the DIFC’s legal regime (which is based on English law) and the general recognition and treatment of DIFC companies as onshore companies for tax and regulatory purposes in the GCC.

Most private funds offered to investors who are subject to US tax are generally limited partnerships or limited liability companies (LLC). US entities are generally formed under the laws of a US state, rather than under national law. Most private funds are formed in Delaware.

In a master-feeder fund structure, the US feeder is generally a limited partnership or LLC formed in Delaware, while the offshore feeder and the master fund are formed or otherwise organized in a non-US jurisdiction. In most instances, a master fund will be taxed as a US partnership, which may require the filing of an election to that effect with the US Internal Revenue Service.

There are other fund structures common for registered investment companies which are not covered here.