Alternative Investment Funds

The global financial crisis kept the whole world in suspense for several months. As a response to that, the 20 most important industrial nations decided that no player on the international financial market should act without government control. As a result asset managers experienced far-reaching changes on a national, but especially on the European level.

The free movement of capital constitutes a main element of the internal market and one of the European fundamental freedoms. However, directive 2011/61/EU tightens the rules for administrators and distributors of Alternative Investment Funds (AIF). The Directive understands the term AIF to mean all “collective investments”, which are not OGAW-funds and accept money from external investors. This includes hedge funds or private equity companies. Marketing is defined as any direct or indirect offering or placement on the initiative of the AIFM or on behalf of the AIFM of units or shares to investors.

Due to the reform of capital market laws, which resulted from the implemention of several European Directives, the majority of relevant laws in the Czech Republic were integrated into the Act on Capital Market Undertakings (ZPKT) and the Act on Investment Companies and Investment Funds (ZISIF). The Stock Exchange Act and Securities Act were abolished.

Marketing and European passport

Marketing of investment services may only be rendered with permission from the Czech National Bank. All services have to be reported. However, a “European Passport“ was introduced this year. It allows an EU-wide marketing of AIFs to professional investors, which means special funds according to ZISIF, if the distributor is at least allowed to operate in one Member State. However, the duty to report the services to the Czech National Bank remains.

Intermediary’s further obligations

Especially for marketing to private investors several duties have to be taking into account to enable investors to make a profound and informed decision. The distributor has to inform exactly about the issuer as well as about himself. Besides basic information about the investment itself, affected investment vehicles, possible risks of the AIF and how to secure them have to be provided. The information has to include the total price including taxes, commissions and other costs, the content of contractual conditions and rules for implementing instructions. Only an easy to understand and unambiguous language may be used. This information may be made available in writing, electronically or via the internet.

Conclusion and outlook

The workload of managers of AIFs is certainly increased by the directive especially with regard to distribution. However, it can be expected that the reporting and advising obligations as well as the plausibility check will increase the quality of advice. This should result in an increased attractiveness for customers. Czech customers are still rather skeptical about alternative investments, although the directive was already implanted into national law in 2013. The lack of trust in public control remains a problem for AIFs. Besides, tax conditions aren’t very favorable. However, other European countries show that the trust in AIFs has increased constantly particularly as a result of the tightening of the European overview. It remains to be seen how this will develop in the Czech Republic.

Mgr. Veronika Kloubková, LL.M.

09.10.2015
>> Newsletter 3/2015