Control of AMC activities is a crucial moment for owners of collective investment institutions.
Many entrepreneurs who are interested in investing in CII (collective investment institutions) often have fears that the company’s asset management activities cannot be controlled.
This statement is erroneous when it comes to CIF (corporate investment fund).
Unlike a Unit investment fund (UIF), a corporate fund is a legal entity that is formed in the form of a joint stock company and conducts exclusively collective investment activities. Nevertheless, a corporate investment fund is a legal entity that does not have the right to operate independently, for which it needs an asset management company that will act on behalf of, in the interest of and at the expense of the corporate fund.
According to the current legislation, an asset management company is a management account in the securities of a corporate investment fund and manages its accounts opened with banking institutions.
The role of the asset management company in the activities of the corporate investment fund is quite significant, but in practice there is an effective mechanism of control by the CIF owners over the activities of AMC and the fund’s assets.
The mechanism is implemented by organizing the effective work of the control body – the Supervisory Board of the investment fund.
The Supervisory Board of a corporate investment fund is a collegial body consisting of an odd number of persons, the minimum number of members is 3. Members of the Supervisory Board are elected by the General Meeting of the CIF from among individuals with full civil capacity. The Supervisory Board may also include CIF members or their proxies. The procedure for the work of the Supervisory Board is determined by the Law “On Сollective Investment Institutions” and the CIF Charter.
The CIF Supervisory Board is the body responsible for protecting the rights of corporate fund participants.
The mechanism of control over the activities of AMC is:
- joint signing of all asset agreements by the AMC representative and the CIF Supervisory Board Member;
- joint disposal of bank accounts and securities accounts.
Relevant restrictions on the company’s asset management activities are defined in the Articles of Association, regulations, securities issue prospectus and corporate fund asset management agreement, in particular:
- the asset management company does not have the right to independently manage current accounts and securities accounts.
- Asset agreements entered into by AMC without the signature of a Member of the Supervisory Board will have no legal force.
The above restrictions provide full control by investors over the activities of the corporate investment fund. Without the knowledge of the representatives of the Supervisory Board, no payment can be made, each purchase or sale of assets by the investment fund is subject to the agreement and participation of the Supervisory Board of the CIF.
Information on the existence of restrictions in the statutory documents of the corporate fund is also reflected in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Associations. And any third party, including notaries and registrars, who carry out registration actions aimed at changing the owners of assets, will be aware of the existence of such restrictions. This mechanism allows investors to safely invest in securities of the corporate investment fund and not worry about preserving assets.
In the absence of the above restrictions on AMC’s activities in the CIF Charter, the asset management company acquires full control over the assets of the corporate fund at the time of entry into force of the asset management agreement of such fund. Such acquisition of control by the AMC is a concentration that may require the approval of the Antimonopoly Committee of Ukraine.
Therefore, a properly organized mechanism for controlling the assets of a corporate fund by CIF owners eliminates the risk of possible concentration with other funds managed by such an asset management company and with the AMC itself. Consequently, it deprives the Antimonopoly Committee of Ukraine of possible fines for gaining control over other legal entities without first obtaining the permission of the Antimonopoly Committee of Ukraine.
How to implement an effective control mechanism of AMC and investment fund assets through the work of the CIF Supervisory Board?
What exactly are the restrictions of the AMC better to introduce in order to be sure of full control over the activities of the corporate fund?
The specialists of AMC “INVEST-TANDEM” know the answers to these questions, because we have been implementing the above-mentioned mechanism in cooperation with our clients for 10 years.