On May 25, the National Council of the Slovak Republic approved an amendment to Act No. 203/2011 Coll. on Collective Investment, effective as of January 1, 2023, which introduces several changes that we will discuss in more detail in today’s article.
To begin with, we would like to note that the amendment in question changes the definition of a qualified investor; under this amendment, a qualified investor is defined as an investor who invests at least 50,000 euros, unless Section 31d provides otherwise. At first glance, this may seem like a minor and insignificant change, but it becomes more significant in the broader context of the entire amendment. The change in the definition of a qualified investor, together with the reference to the new provision of Section 31d, suggests that a person who invests an amount less than that stipulated by law may also become a qualified investor, provided they meet the specific conditions set forth in Section 31d.
But what does Section 31d of the Collective Investment Act regulate? This provision is titled “Special Provisions on the Distribution of Alternative Investment Funds to Qualified Investors Pursuant to Section 4(2)(b).” This provision thus introduces a legal framework that allows for the distribution of securities or equity interests in an alternative investment fund to a qualified investor whose investment in such a fund is at least EUR 100,000, provided that three basic conditions are met cumulatively, i.e., simultaneously. The first condition is that the number of qualified investors investing in a single alternative investment fund must not exceed 50 persons. In total, therefore, a maximum of 50 qualified investors may participate in collective investment in the fund. The second condition is that the share of qualified investors in the net asset value of the alternative investment fund does not exceed 20%. The third condition stipulates that the share of qualified investors in the total value of the alternative investment funds managed by a legal entity managing alternative investment funds, for the management of which no license is required (in practice, these are funds with assets of up to 500 million euros), shall not exceed 20%, and this restriction applies to managed assets managed by the legal entity managing alternative investment funds either directly or indirectly through a company with which it is linked by personnel or a control relationship, or by a significant direct or indirect stake.
Another key issue is who may distribute these securities and equity interests in alternative investment funds. The Act stipulates that this must be a financial institution holding a valid license to provide investment services in the form of investment advice or a valid license to provide investment services in the form of portfolio management, along with the performance of a suitability test for investments in securities or equity interests for a qualified investor. For the purposes of the Act on Collective Investment, a financial institution means a securities dealer, a branch of a foreign securities dealer, a bank, a branch of a foreign bank, an insurance company, a branch of a foreign insurance company, a reinsurance company, a branch of a foreign reinsurance company, a central securities depository, a securities exchange, a pension management company, a supplementary pension company, and entities with their registered office outside the territory of the Slovak Republic engaged in similar activities.
The Act further introduces an information obligation, pursuant to which a legal entity managing alternative investment funds is required to provide qualified investors with information on the riskiness of the investment, a description of the investment strategy and objectives of the alternative investment fund, a description of the procedures by which the investment strategy and investment policy of the alternative investment fund may be changed, a description of all fees, costs, and expenses borne directly or indirectly by investors and their maximum amounts, as well as the procedures and conditions for the issuance, redemption, or repurchase of securities or units of an alternative investment fund or a foreign alternative investment fund.
