Alternative Investment Funds: What Does the New Law Bring

Alternative Investment Funds: What Does the New Law Bring

Serbia
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National Assembly of the Republic of Serbia adopted the Law on Alternative Investment Funds (“The Law”) which came into force on 19 October 2019 and which became applicable on 20 April 2020.

Reasons for passing the Law

The main purpose for adopting the new Law was harmonization of Serbian legal system with the legal system of the EU, the improvement of the capital market, as well as the need to provide a higher level of protection in case of risky investments of alternative investment funds and to define more closely and in more detail the rules that exist in relation to management companies of alternative investment funds.

What does the Law regulate?

Pursuant to the Law, an alternative investment fund is a fund which raises funds from the investors with the purpose of further investing in accordance with the determined investment policy and in favor of these investors.

The Law regulates establishment and management of alternative investment funds, the way of placing on the market, issuing and buying out of shares in the alternative investment funds, the affairs and duties of the depositary and the competence of the Securities Commission.

Requirements for management companies

Organizational requirements for management companies include rules of business conduct such as governance, fee policies, risk and liquidity management, valuation rules, delegation of business processes, as well as depositary activities and responsibilities.

Transparency requirements will include reporting obligations of persons managing the alternative investment fund to investors, the obligations of the management company to annually announce the investment strategy and aims of the fund when it acquires the control of the companies, as well as general information on the profitability of the company.

Types of Alternative Investment Funds (AIF)

The Law sets forth different types of funds and prescribes the types of assets into which alternative investment funds can invest raised funds. The Law distinguishes open-ended and closed-ended AIFs.

I   An open-ended alternative investment fund is a separate asset that does not have the status of a   legal entity and that is organized and managed by management company.

II  By defining a closed-ended alternative investment fund, the Law sets forth:

  • closed-ended AIF which is not a legal entity;
  • closed-ended AIF which is a legal entity established by the alternative investment fund management company and
  • legal entity with the internal management – new type of closed-ended AIF introduced by the Law.

New type of closed-ended AIF manages its own assets by itself and not through AIF’s management company and therefore it simultaneously represents by itself the management company.

Securities Commission competence

Taking into account the current situation on the domestic market, the Law stipulates that it will be possible to delegate the safekeeping of assets to domestic and foreign banks in the period prior to accessing the EU, provided that the prescribed conditions are met and with the prior consent of the Securities Commission. By regulating delegation in that manner, a greater level of security, control and liability will be ensured, since the supervision will be exercised by both the National Bank of Serbia and the Securities Commission.

Application of the Law

Although most of the provisions are applicable as of 20 April, the application of the provisions relating to the cross-border operations of the alternative investment fund management companies and the delegation of depositary operations are delayed until the accession of Republic of Serbia to the EU, while the provisions relating to small investors and the public offers are postponed until 1 January, 2021.

This article is to be considered as exclusively informative, with no intention to provide legal advice.
If you should need additional information, please contact us directly.

By Milan Petrovic, Managing Partner, and Natalija Dukic, Associate, PR Legal