Closed Mutual Funds: New Regulations

On September 18, 2018, the Argentine Securities and Exchange Commission (the “CNV”, after its acronym in Spanish) issued General Resolution No. 763 (the “Resolution”), modifying CNV Rules (2013 Text as amended) and implementing the new regulations applicable to Closed Mutual Funds ( “Closed Funds”), which was previously extensively regulated by Law No. 27,440 of Productive Financing.

The Resolution implemented the new legal regime applicable to Closed Mutual Funds and was issued based on the understanding that Closed Mutual Funds are a fundamental means of fundraising and investment for the development of economies and looking to reinforce the demand for securities in the capital markets to increase their depth and liquidity.

Regarding Closed Funds, the Resolution mainly sets forth the following:

- the procedure to be followed in order to constitute and operate Closed Funds;

- the minimum contents of the management by laws and the prospectus to be filed by the manager and depositary companies with the CNV, as well as the informative regime applicable to Closed Funds;

- that the fund must comply with minimum dispersion requirement (a minimum of 5 quota holders per mutual fund) since its constitution and during its period of effectiveness and that no single quota holder can own quotas that represent, either directly or indirectly, more than 51% of the voting rights under the corresponding Closed Fund;

- that the management by-laws may establish the issuance and placement of quotas in one or more tranches within the maximum sum authorized by the CNV, as well as the alternative to increase the number of quotas, by taking into account, in both cases, the exercise of preemptive rights of the existing investors;

- the steps that must be followed in case of in-kind quota subscription and in the event of the deferment of in-kind contributions;

- the possibility of investing the liquid funds in assets whose characteristics and risks are compatible with liquidity requirements, the mutual fund’s objectives and its investment plan and the need to determine an investment schedule;

- the procedure to be followed to distribute gains, the regime of quota holders’ meetings and the possibility of the early redemption of quotas of such Closed Fund;

- the possibility of creating liens and incur into indebtedness by the Closed Funds, stating that the debt must not exceed the net assets of such fund; and

- the requirement of investing directly or indirectly in assets located in the country, demanding that at least seventy five percent (75%) of the net assets of the fund is invested in specific assets of said Closed Fund.

Finally, the Resolution also includes provisions concerning the documents and information to be provided regarding Credits Closed Mutual Funds and Real Estate Closed Mutual Funds.