In order to harmonize its legal system with the legal system of the European Union, the Republic of Serbia shall ensure some new methods for raising funds. That is the main reason why the National Assembly of the Republic of Serbia adopted the Law on Open-ended Investment Funds with a Public Offering (“LOIFPO”) and the Law on Alternative Investment Funds (“LAIF”) on October 10, 2019. These laws introduce new legal concepts into the Serbian legal system, thus enriching both capital and financial market. Both laws will come into force on October 19, 2019 and shall become applicable on April 20, 2020.
The LOIFPO implements the special type of the investment funds which are widely known as the Undertakings for the Collective Investment in Transferable Securities (“UCITS”). The UCITS is an open-ended investment fund with a public offering which as the sole object has the collective investment in transferable securities or in other liquid financial assets of capital raised from public offering of units in the fund and which operates on the principle of risk-spreading and the units of which are, at the request of holders, repurchased or redeemed, directly or indirectly, out of fund’s assets.
Therefore, natural persons and legal entities as investors shall now have an opportunity to invest in well diversified investment funds, particularly those who prefer not to invest in a single public company’s shares or other securities.
When it comes to the LAIF, its Article 2 provides the definition of alternative investment fund (“AIF”), stating that the AIF is an investment fund established in accordance with the LAIF, which raises funds from the investors with the purpose of further investing these funds in accordance with the determined investment policy in favour of these investors, and without having rendered a decision granting a license in terms of the law governing establishment and operation of an open-ended investment funds with a public offering.
Although it might seem unusual that an AIF is legally enabled to participate in the capital market without having a license it does not mean that the Securities Commission (“SEC”) shall not have and exercise supervision powers over the AIFs since the establishment and operation of the investment fund management companies still require the SEC’s authorization.
The LAIF distinguishes open-ended alternative investment funds and closed-ended alternative investment funds. Besides a closed-ended alternative investment fund which is not a legal entity and a closed-ended alternative investment fund which is a legal entity established by the alternative investment fund management company that manages the AIF, perhaps the most important novelty introduced by the LAIF is the completely new type of a closed-ended investment fund which is a legal entity with the internal management.
As the main feature of this closed-ended investment fund that should be pointed out is that it manages its own assets by itself and not through the alternative investment fund management company and which simultaneously represents the alternative investment fund management company.
Additionally, these two laws have broadened supervisory powers of the SEC on the capital market which means that the SEC shall perform all activities such as monitoring, having insight in fund’s business operations, pronouncing supervisory measures and prepare and enact all necessary bylaws, such as rulebooks, instructions, and other documents which shall regulate in a more detailed manner what has been specified in these two laws.
Besides the formal reasons for adopting these laws, one of which is the abovementioned harmonisation of Serbian legislation with the European Union law, the essential motive why our legislator adopted these laws is in making more opportunities for Serbian companies to raise additional funds and thus creating alternative forms of funding, meaning that the banks are not going to be the only address where to go to in the case when they need funds to support their investments.
If you have any additional questions or need further information regarding this matter, please contact Igor Živkovski, Živković Samardžić Corporate and M&A Partner, who was a member of the Working Group that prepared the LOIFPO and the LAIF.