Private equity, venture capital fund management services: Registration mandatory for anyone to be engaged in business

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has made registration mandatory for anyone to be engaged in business of private equity and venture capital fund management services. The SECP has amended Private Funds Regulations, 2015 through an SRO 545 (I)/2020 issued here on Monday.

According to the SRO 545 (I)/2020, no person shall establish, launch, or raise money in Pakistan for investment in a private fund unless the fund is registered under these regulations.

The SECP has specified that Private Fund Management Company shall submit the draft trust deed along with the name and consent of the trustee of the proposed private fund in accordance with Schedule II or draft Memorandum of Association or draft Limited Liability Partnership Agreement along with custodian agreement for approval of the commission as per schedule-III.

Upon securing in-principle approval of the commission, the Private Fund Management Company shall execute and seek registration of the trust deed in accordance with the provisions of the Trust Act, 1882 or incorporate company in accordance with Companies Act, 2017 or register limited liability partnership in accordance with Limited Liability Partnership Act, 2017, as the case may be.

Where a private fund utilises or proposes to utilise borrowing, the Private Fund Management Company shall ensure that it has necessary expertise in managing private fund employing borrowing strategies including understanding the impact of borrowing on the overall risk of a portfolio and having the ability to monitor the use of borrowing; has clearly disclosed in the Placement Memorandum of the Private Fund, at the minimum.

The borrowing parameter for the Private Fund (including the maximum amount of borrowing, duration, and whether secured or unsecured), the basis of borrowing and risks involved.

The liability of the unit holder is limited to their investments in the fund. It has borrowed only from a financial institution/companies. The short-term borrowing by a Private Equity and Venture Capital Fund shall not exceed 15 percent of the size of that Private Equity and Venture Capital Fund and any long-term borrowing by a Private Equity and Venture Capital Fund shall only be repayable on the date of maturity of that Private Equity and Venture Capital Fund or shall only be obtained against an instrument convertible into equity.