Private Equity and Venture Capital Fund Management Services: SECP sets registration condition

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has imposed a restriction on the business of Private Equity and Venture Capital Fund Management Services in Pakistan without registration with the commission. The SECP has amended Private Funds Regulations, 2015 through an S.R.O. 545 (I)/2020 issued here on Friday.

According to the revised regulations, 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 further stated that the 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 alongwith custodian agreement for approval of the Commission as per schedule.

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 (II of 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, SECP added.

The SECP specified that a Private Fund Management Company may make investment in private funds managed by it out of its surplus equity (i.e. over and above the required minimum equity requirements). A Private Fund can be sub-categorized as Private Equity and Venture Capital Fund, Venture Capital Fund, Angel Fund, Small and Medium Enterprise Fund, Infrastructure Fund, Impact Fund, Hedge Fund etc. A Private Fund can be categorized into any sub-category subject to investment of at least seventy percentage of its net assets in eligible investment of that that sub-category investment.

Where a Private Fund utilizes or proposes to utilize 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, SECP maintained.

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.

Moreover, it has borrowed only from a financial institution/companies and short term borrowing by a Private Equity and Venture Capital Fund shall not exceed fifteen percent (15%) 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, SECP added.

Copyright Business Recorder, 2020