SLOVAKS are slowly getting used to investment funds. The majority of retail investment funds, such as mutual funds and pension funds, have gained a foothold on the Slovak financial market. But investment funds requiring long-term, considerable investment, such as qualified investor funds, remain largely unknown to Slovak investors and legislation.
This October, the first qualified investor fund founded by a company with Slovak shareholders began its operation. Arca Capital CEE fund was established in the Czech Republic, where legislation has allowed for this type of fund since 2006.
The fund’s investments will flow primarily into private equity projects in Central and Eastern Europe, according to Arca Capital. In the Czech Republic, Arca Capital CEE is the first self-administered qualified investor fund whose finances will be directed to private equity investment.
“The history of investing in investments funds, including private equity [funds], is relatively short,” said Pavel Makovec, director of Arca Capital CEE investment fund. “Up to now, potential investors lacked an interesting offer, and, at the same time, the legal framework pertaining to private equity funds was not quite transparent for the public.”
The fund’s first stage will be to invest in some of Arca Capital’s existing private equity projects. The finance will also be partially invested in the region’s real estate.
The fund’s basic capital currently amounts to Kč50 million (almost €2 million) and it is projected to reach Kč3 billion (almost €120 million).
The fund is established for a 10-year period, and investors will be given to chance to enter it over the next 18 months. The minimum investment is set at Kč5 million.
The fund’s depositary is ČSOB bank and its auditor is KPMG. The fund’s statute requires it to diversify its assets to at least three projects. Another reason the fund was established in the Czech Republic is because Slovak legislation does not yet allow for a qualified investor fund that could put its finances into private equity investments, according to Arca Capital.
Based on the general conditions set by the Czech legislation, qualified investor funds are supervised and licensed by the Czech National Bank.
The fund’s returns are subject to a lower income tax rate of 5 percent. For 2008, this is 16 percent less than standard joint stock companies, Makovec said.
The investment funds are established as joint stock companies that raise financing by writing up shares. Investors become shareholders by purchasing shares from the fund’s founder.
Investments in the fund must be in line with the fund statute.
The fund must also have a bank as a depositary that approves all the investments and examines whether the price at which the fund buys assets is transparent. The price must also be justified by an independent expert. However, such funds are only for qualified investors. These can be institutional investors, such as banks, insurance companies, or pension funds, as well as individuals who are obliged to provide a statement affirming their experience and knowledge.
The fund can have up to 100 investors and the legislation sets the minimum investment at Kč1 million (almost €40,000).
In fact, each fund can set its own minimum investment, but it cannot be lower than Kč1 million.
Therefore, this type of investment is not a mass product, but rather for experienced investors with considerable resources, Makovec said.
“It is a relatively new financial instrument, so it is necessary to have a certain level of awareness of it,” he said .
Makovec expects that the Arca Capital CEE fund will be interesting for various clients, especially corporate clients.
“Our fund is being offered primarily to investors from the Czech Republic and partially from Slovakia,” he said. “In the future, we will also offer our fund to investors from other European countries who are looking for an opportunity to invest in Central and Eastern Europe.”
Other Slovak private equity companies do not yet offer investment into their private equity projects through qualified investor funds.
J&T Finance Group offers its private clients the chance to share its investments through its private bank, J&T Banka, said Maroš Sýkora, the group’s spokesman.
Slavia Capital uses a system of private partners when the group introduces its projects to a private investor, who decides where to invest and enters the funds by purchasing bonds or shares. The minimum investment stands at Sk10 million (€331,939.19), according to Peter Benčurik, a spokesman for Slavia Capital.
Penta Investments does not create classic private equity funds, said Martin Danko, its spokesman. It manages an evergreen fund created by its five partners who are also shareholders.
