The Alternative Investment Funds (AIF) has become extremely popular among investors. The lack of burdensome reporting obligations with regard to the Polish Financial Supervision Authority (PFSA), simple handling and tax preferences make AIF a great alternative to overly expensive and strictly regulated investment funds. What do investors most often ask about in the context of AIF?
We conduct several meetings a month with clients interested in this investment vehicle. Here are the questions usually asked in the context of AIF:
How long does it take the PFSA to close the Alternative Investment Fund registration process?
The duration of the procedure before the PFSA depends on several factors. First of all, it depends on what they submit to this body, i.e., how complete the application is (quite obviously), what is the matter of the investment policy and strategy, and on what the structure of this fund is to be like – internally or externally managed. An unknown factor should be added to this, that is, the things which happen to the application on the part of the authority (namely, the personal factor – holidays, dismissals, workload on the part of the PFSA, etc.).
Considering the above, on the basis of our practice, it can be concluded that the procedure before the Polish Financial Supervision Authority usually lasts from 2 to 5 months, and the entire process of “setting up” AIF from the moment of its incorporation before a notary to the registration with the National Court Register (when it becomes ready to receive assets) usually takes from 3 to 6 months.
It is a fairly long time. From the investor’s perspective, it is sometimes an even unacceptably long time. Therefore, for people who care about time very much, we have a solution which allows them to reduce the wait for AIF to the necessary minimum, counted in weeks. If you are interested, please contact us.
What does the acquisition of founds from investors look like?
The status of an alternative investment company constitutes a certain corset which is imposed on the company, but this does not change its essence, i.e., the mechanisms of operation in the company itself remain unchanged.
Therefore, for example, AIF is allowed to:
- admit investors to contribute capital through the issuance of shares, bearing in mind that a joint stock company is more flexible and offers more opportunities
- the question of whether AIF can become a simple joint-stock company, which gives a great deal of flexibility in this regard, remains a separate issue – I wrote about it more in the article “AIF, or what investment prospects are provided by the successor of FIZs (closed-end investment fund of non-public assets)“
- alternative sources of financing (bonds, participation loans) should be taken into account with considerations for the regulation on investment funds – these require case by case consideration.
In each case, AIF must assess the way in which the offer is addressed to investors, i.e., whether it is done publicly (an open group of recipients or a closed group but exceeding 149 people) or not, as this determines the nature of its offer and the rigours to which it should be subjected. Public offering is associated with the obligation to prepare a memorandum/prospectus and its approval by the PFSA, etc.
There are exemptions from the obligation associated with public offering, e.g., for alternative financing methods (crowdfunding), with a value not exceeding EUR 5 million.
It should be borne in mind that, as a general rule, AIF may target its offer at a professional customer (within the meaning of the regulations on funds). In the case of public offering, this restriction does not apply.
When can we contribute assets to Alternative Investment Fund?
This is only possible from the moment of the full registration of AIF with PFSA and the National Court Register. The Act on Funds requires that the entry in the register of AIF managers take place at the stage of creating AIF, i.e., after the incorporation of this company, and before its registration in the register of entrepreneurs of the National Court Register.
This means that in the case of an internally managed AIF, the procedure takes place in the following order:
- incorporation of an internally managed AIF (before a notary)
- registration with PFSA
- registration with the National Court Register
- contribution of assets
and, in the case of an externally managed AIF, the procedure shall include:
- incorporation of an external manager of AIF (before a notary) – a general partner of a future AIF is created – it may also be a different, already existing entity
- entry of the general partner in the National Court Register
- incorporation of an externally managed AIF in the National Court Register before a notary
- registration of the AIF, which it intends to manage with PSFA
- registration of the AIF, which it intends to manage with the National Court Register
- contribution of assets to AIF
What does AIF report to PSFA?
Unlike in the case of investment funds, AIF entered in the register of managers is obliged to monitor the total value of assets constituting its investment portfolios and to conduct annual reporting of economic indicators to PSFA – while the activity of AIF itself remains essentially outside the sphere of PFSA interference.
Do we need to have an investment advisor on the board?
No. Special requirements pertaining to the management board members (such as possession of education or an investment advisor licence or several years of experience in financial market institutions) do not apply to AIF, which operates on the basis of an entry in the AIF managers register, i.e. entities whose total assets do not exceed EUR 100 million (virtually the entire market of alternative funds/investment companies in the European Union remains below this limit).
Furthermore, such a “simplified” AIF, as a less strictly regulated entity, is not subject to the following obligations:
- no obligation to have a depositary monitoring the state of its assets
- no manager of an investment fund company
- no mandatory valuation of AIF assets (in the case of an “ordinary fund”, valuations are conducted at least every 3 months).
As a result, the operating costs of AIF are significantly lower than those of ordinary investment funds. This also causes a significant simplification of the organisational structure and consequently facilitates decision-making in the company.
Can I conduct other types of business (other than investing) in AIF?
That depends on the details of a given case. On the one hand, it must be borne in mind that, in the case of AIF, the regulations state very clearly that “the sole object of the activity of an alternative investment company […] is to collect assets from a number of investors with a view to investing them in the interests of those investors in accordance with a defined investment policy“. In other words, AIF manages third-party capital and at its level investment decisions are made on behalf and in the interest of the investors.
AIF may undertake activities not directly within the scope of investment operations only if such an obligation results from specific provisions, but then such additional activities must be related to the main object of activity, which is investment.
Thus, in general, the structure of AIF’s operation should be such that AIF (as an internally managed AIF), or AIF’s general partner (as an external manager) are in a way the holding companies through which the financing is passed. In turn, the core business of investments is conducted at the SPV level “below” AIF.
In conclusion, AIF gives a lot of flexibility to operate in the field of investment, and at the same time it is not bound by a regulatory corset, which means that people organizing investors’ capital within AIF and building an investment portfolio enjoy (in principle) considerable freedom of action. Obviously, what should be taken into account is the constraints imposed by the investment policy and strategy and by the agreements under which the investors entrust their funds to AIF, but the very idea of AIF as an investment vehicle is extremely attractive and inexpensive to maintain, which explains its growing popularity.
Read also: AIFs (Alternative Investment Funds) lead the way on the polish capital market