CNV Proposes to Regulate Open-end Funds Destined for Qualified Investors

The Argentine Securities and Exchange Commission (the “CNV” after its acronym in Spanish), through its General Resolution No. 765 (the “Resolution”), called for comments from the general public regarding a proposed regulation on the registration, investment and operations of Open-end Funds destined exclusively to Qualified Investors (“QI Funds”). The deadline for comments by the general public expired on October 31, 2018. Below is a description of the regulation for QI Funds proposed by the CNV.

(a) Qualified Investors. Only Qualified Investors, as defined by General Resolution No. 761/2018 (see "Argentine Securities and Exchange Commission Amends Definition of Qualified Investors") can invest in the QI Funds. Agents acting in the placement will have to verify compliance with those requirements by potential investors.

(b) Exemption to limits on investment in foreign assets. The QI Funds will not need to comply with the limit set by Section 6 of Law No. 24083, by which Open-end funds had to invest at least 75% of their assets in in Argentina. Nonetheless, investments by these Funds abroad must be made in securities that have authorization for public offer by the Securities and Exchange Commission in their jurisdiction, which must be a jurisdiction that (i) is considered as cooperative by the list published by the Argentine Tax Authority in compliance with subsection b) of Section 2 of Decree No. 589/2013; and (ii) is not considered as non-cooperative or high-risk jurisdictions by the Financial Action Task Force.

(c) Investment guidelines and limits. QI Funds must also comply with the following investment guidelines and limits:

• They will not be allowed to invest in securities issued by the Fund Manager and/or Depositary Company;
• Investments in securities issued by one issuer or several issuers that belong to the same economic group cannot exceed 40% of the fund’s assets;
• Investments in securities issued by the Fund Manager’s parent company, or its affiliates, cannot exceed 2% of the parent company’s capital or outstanding bonds ;
• Investment in assets that represent corporate capital of an issuer cannot represent more than 20% of said issuer’s corporate capital, and investment in its corporate bonds of said issuer’s total liabilities; in both cases, according to the last published annual or trimestral financial statements;
• As to investments in public debt issued in the same issuing conditions –that is, different series of a same asset where only the issuance date changes issued by the National Government, Provincial Government or Municipal Government, may not exceed 40% of the fund’s net worth; and
• Up to 100% of the net worth of the QI Fund can be deposited in a financial institution outside Argentina which complies with the conditions provided in section (b).

(d) Investment in other Trusts. The QI Funds are allowed to invest in units of other local or foreign open-end mutual funds, as long as investment, liquidity, diversification, debt and redemption policies are consistent with those for the QI Fund, and the following investment guidelines are followed:

• Up to 40% of the fund’s assets can be invested in units issued by the same local Openend fund.
• The QI Fund can invest in Open ended Funds registered outside Argentina if they comply with the requirements described in section (b).
• If the QI Fund invests exclusively in foreign funds, this must be provided in the Management Rules, together with the fees, commissions and expenses regimes.
• Investment in Closeend funds, either local or foreign, is limited to up to 25% of the fund’s net worth.

In all cases, the Fund Manager must disclose the fees, commissions and expenses related to the Mutual Funds in which the QI Fund invests to the investors.

(e) Indebtedness. The Rules of the QI Fund have to provide the indebtedness limit, which cannot exceed the net worth of the QI Fund-

General regulations for Open-end funds will be applicable.