New CNV Proposal on Collective Investment Products for the Development of Private Equity

On September 3, 2020, the Argentine Securities and Exchange Commission ( the "CNV" after its acronym in Spanish) published Resolution No. 854, which opened the procedure for the Participatory Elaboration of Regulations inviting opinions and/or proposals regarding the creation of a new differentiated regime for the set up and authorization of Collective Investment Products for the Development of Private Equity (the "Proposal").

The CNV has set a term of 15 business days to submit opinions and/or proposals through its website.

The Proposal focuses on the incorporation of Chapter VII on Collective Investment Products of Private Equity to Title V of the CNV Regulations.

 

Collective Investment Products of Private Equity will be considered as Close Mutual Funds (the "CMFs") and Financial Trusts (the "FTs") the purpose of which is to finance, invest and/or develop private equity projects.

The underlying assets of the CMFs and the FTs must be equity investments -either in direct equity interests or through convertible instruments- in companies that are in an early stage of development or expansion and that, at the time of investment, are not authorized to participate in the public offering regime (the "Eligible Companies").

 

It should be noted that:

 

• Collective Investment Products must include in their name the expression " Private Equity ";

 

• Securities issued under this framework may only be acquired by Qualified Investors;

 

• The functions inherent to the activity of selection and management of the invested assets may be carried out by a Professional Manager, who must be an expert in the administration of the specific assets to be invested, with vast experience and professional training at a national or international level;

 

• An Investment Committee must be constituted, which will be in charge of advising on the execution of the investment and disinvestment policy of the vehicle, and the selection and analysis of the Eligible Companies. In the event that more than one investment area or sector is contemplated, specific committees may be formed on the matter in question;

 

• A Control Committee may be constituted, which will be responsible for controlling the management of the Collective Investment Product and tracking the fulfillment of its investment policies and the analysis and identification of situations that may give rise to possible conflicts of interest.

 

At the same time, the amendment of Article 16 of Section IV of Chapter II of Title V on the Contents of the Management Regulations of the Open-end Funds is also contemplated, allowing the latter to invest up to 5% of the Fund's assets in shares of CMFs managed by another Management Company.

Finally, the Proposal establishes that no shareholder may have any direct or indirect participation in the Eligible Companies, nor influence in their administration. Investments in the same Eligible Company may not exceed 20% of the Fund's assets, nor more than 35% in companies belonging to the same economic group. Likewise, the Fund's assets may not be invested in the capital of companies or vehicles, if any, that have or have had ties during the last twelve months with the Managing Company, the Depositary Company, and/or their managers and/or the economic groups to which they belong. On the other hand, the Fund's assets may not be invested in the capital of companies that have or have had corporate links with the members of the Investment Committee.