I am not sure if it’s due to good times we’ve had economically for the last 10 odd years, but there’s quite a lot of people who get in touch with us and want to register an investment fund. Perhaps it’s the idea of running an investment fund that’s so appealing or the perception that starting a fund is a sure-fire way of making a lot of cash. Therefore, the interest in such legal structures has been constantly high in the last couple of years. As any money management is a regulated business, everything starts with mapping out the planned activities before the licensing process. There are multiple different activities which the fund can do, hence, we require our clients to be as detailed as possible. The planned activities, investor types and size of the fund will also determine the capital requirements.
It’s easier to obtain any license if you’re not going to on-board retail investors. Any investment service provided to retail investors is super-regulated. Then we have the qualified investor, which is similar to the term accredited investor in the US. Below, I am going to talk about the small investment fund structure in Estonia. There are some exemptions which enable raising capital from retail investors, and also a reference to the qualified investors. I’ll also elaborate on who is a qualified investor, as it often confuses our clients if not explained in detail.
Small alternative fund can be used if:
1) only offered to qualified investors or;
2) to maximum 150 investors per Member State who are not qualified investors or;
3) At least 100k investment per offer
4) at least 100k value per unit
5) total money raised less than 2,5m euros per calendar year.
If investors are outside of the EU, no special regulation applies until you hit the allowed capital threshold.
Description of a small alternative fund
A manager of small alternative funds is a fund manager which manages, either directly or indirectly through a company linked thereto by common management or control or qualifying direct or indirect holding, alternative funds which:
1) volume of assets, including all the assets of the funds acquired by the use of leverage, in total does not exceed 100 million EUR;
2) volume of assets in total does not exceed 500 million EUR provided that the portfolio of the alternative funds consists of unleveraged alternative funds and the right to redeem the units or shares cannot be exercised within five years after the date of making investments in each alternative fund.
In order to register a small fund manager, the management board of the fund manager shall submit to the Financial Supervision Authority a written application and the following data and documents:
1) the contact details and articles of association or other equivalent document of the small fund manager;
2) the number of funds managed and their names or business names;
3) the dates of foundation or establishment of the funds managed and the country under which law the funds were founded or established;
4) the information concerning the investment policy of the funds, including the investments and instruments traded, trading venues of the fund, the main risks of the fund and composition and total value of the assets managed.
Small fund manager can create number of different funds.
Who is a qualified investor / professional client for the purpose of the directive?
Comistar provides business, legal and tax support for e-residency companies. Our core focus is on Fintech licensing, e-commerce companies, blockchain industry and affiliate marketers. We’ve been operating for over 6 years and have helped more than 300 companies to get started in Estonia.