Over the past year, the Antimonopoly Committee of Ukraine has been closely scrutinizing business structures involving corporate investment funds during the review of merger control notifications. In particular, the regulator is interested in relations of control among asset management companies, corporate investment funds, and their shareholders. Depending on the regulator’s position, the list of parties to a concentration can be significantly wider than one may probably realize.
Under the Law of Ukraine On Mutual Investment Funds, a corporate investment fund has two governing bodies that define and implement the fund’s investment strategy – the general meeting of shareholders and the supervisory board. Among other powers, the shareholders may choose and change an asset management company of the fund. At the same time, the supervisory board approves agreements entered into by the asset management company in relation to the fund’s assets. In its turn, an asset management company is an independent entity that participates in managing the fund’s assets (for example, shares, stocks, etc.) on behalf of the fund, under an asset management agreement.
So the powers of the asset management company stem from the agreement between the asset manager and the fund. Moreover, asset management companies usually provide nominal professional services and act upon instructions of the fund rather than make independent business decisions while running the business.
But even if the asset management company controls the fund, it does not automatically follow that such a fund is connected to other funds under the management of the asset manager. At the same time, according to the regulator’s conservative stance, various funds managed by the same asset management company are related entities constituting a single economic unit, due to the powers the asset management company usually has under the asset management agreement. This, however, does not reflect the Ukrainian business reality and often creates far-reaching and undesirable consequences for parties to concertation.
The asset manager usually manages multiple funds, which might be completely independent and belong to different business groups. In addition, as mentioned above, the asset manager often performs a mere nominal function and has no real influence over the fund. However, following the regulator’s flawed logic, shareholders of those funds, the funds themselves, and their assets are considered to be a single economic unit. The regulator concludes so by establishing that all these elements have one thing in common – the asset manager.
In practice, it means that when making a merger control filing business group A must also provide to the regulator corporate and market information on business group B. In the regulator’s opinion, the lack of such information would not allow it to conduct the substantive appraisal of concertation. As a result, the regulator will not review the merger control notification until it receives all necessary information on group B. However, providing such information is impossible in most cases, since there is no economic nexus between group A and group B (after all, they are not affiliates, and group B’s information is confidential). Moreover, group A would be required to account for business group B’s financial and market performance, even though there is no way group A can influence such performance. This may lead to the wrong allocation of market power. For example, group A can be viewed as a dominant entity in a given market because of the market position of group B.
To avoid such undesirable results, one should always closely analyze statutory documents of the fund and asset management agreement or even consider amending them in some cases. Depending on the wording of the relevant document, it might be possible to carve out the asset management company and third-party assets from the fund in question – for example, by limiting the rights of an asset management company.
By Mykyta Nota, Counsel, Co-Head of Competition Practice, and Anton Arkhypov, Senior Associate, Avellum