Private fund management company is required to assess the net worth of an eligible investor through his latest tax return and wealth tax statement filed with the Federal Board of Revenue (FBR). The SECP issued SRO 1214 (I)/2019 to introduce draft amendments to the Private Funds Regulations, 2015 here on Friday.
According to the SECP, the financial soundness of an eligible investor shall be assessed on the basis of net asset excluding value of residence through latest available tax return and wealth tax statement. Private fund management company, before offering a private fund to an eligible investor, shall asses or take into consideration the financial sector experience, risk tolerance and net worth of eligible investor. The net worth of an eligible investor shall be assessed through his latest tax return and wealth tax statement.
Under the revised regulations, the "eligible investor" means a person who has net assets of at least Rs 15 million excluding the value of personal residence and who furnishes a declaration to the Private Fund Management Company that he understands the risks of investment in a private fund.
The SECP has also revised rule of prohibition to engage in business of Private Equity and Venture Capital Fund Management Services without registration. No person shall establish, launch or raise money in Pakistan for investment in a private fund unless the fund is registered under these regulations.
Previously, no person could establish, launch or operate any business in the form of or in the nature private fund unless it is registered under these Regulations. The Private Fund Management Company shall ensure that the valuation methodology is documented and disclosed in the placement memorandum specifying how the portfolio valued and units priced; the investment of the private fund is fairly valued on a regular basis and the frequency of such valuation shall be clearly disclosed in the placement memorandum and the fund is valued at least once in a financial year by an independent valuer appointed with the consent of the trustee, the SECP said.
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; clearly disclose in the placement memorandum of the private fund, at the minimum, the following: Firstly, 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. Secondly, the liability of the unit holder is limited to their investments in the fund and thirdly the borrowing shall only be availed from financial institution/companies.
Under the regulations, 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 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.
While defining "angel fund" and "angel investor", the SECP said that the "angel fund" means a sub category of private equity and venture capital fund which raises funds from angel investors for investment mainly in unlisted securities of start-ups, emerging or early-stage companies mainly involved in new products, new services, technology or intellectual property right based activities or a new business model. The "angel investor" means an eligible investor who proposes to invest in an angel fund and must be a senior entrepreneur or management professional with at least ten years of experience, the SECP added.
Copyright Business Recorder, 2019
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