Background
Today we are seeing increased interest from Russian businesses in transferring income-generating assets to closed-end mutual funds (so-called ZPIFs) (“CEMF”) for fiduciary management.However, along with the retained preferential tax regime, a CEMF created for collective investment has certain disadvantages in terms of its corporate governance, such as the inability to attract investors with different rights attached to CEMF units, since funds are not permitted under mutual fund laws to issue different classes of units with different voting and income rights.
This has made it difficult to attract investors who do not need/want to participate in the management of CEMFs, but expect to receive a return on their CEMF investments.
What has changed?
On 17 December 2024, the State Duma adopted in the third reading a law amending the Federal Law “On Investment Funds” (“Law”) and certain legislative acts of the Russian Federation.In particular, a mutual fund’s fiduciary management rules for qualified investors may now envisage classes of units providing different rights. Such rules should include unique symbols for different classes of units to distinguish them from one other.
Units of different classes may provide different rights to receive income generated by the fund, including a different timing, frequency of payment and amount of such income. However, units of the same class must provide the same rights.
In addition, units of a certain class may carry a number of votes different from the number of units when a resolution is adopted by the general meeting of unit holders.
Units of at least one class should give their holders the right to vote when the general meeting of unit holders makes decisions on all matters reserved for the general meeting of unit holders. If units of a certain class do not grant the right to vote on matters reserved for the general meeting, the holders of such units must have the right to receive income from the fiduciary management of that fund.
It is not permitted to change the type of a mutual fund with units of different classes.
Thus, the Law actually introduces a mechanism designed to attract investors who may receive different classes of units, including voting (ordinary) and non-voting (preferred) units, by analogy with ordinary and preferred shares in joint stock companies.
The Law also provides for:
- an increase in the maximum term of the CEMF fiduciary management agreement for qualified investors from 15 to 49 years from the beginning of the fund formation period;
- additional requirements concerning the procedure for convening and holding a general meet-ing of CEMF unit holders;
- a procedure for converting CEMF units for qualified investors;
- the right of the fund depositary which carries out CEMF closure to unilaterally terminate a con-tract with an appraiser;
- the obligation of the CEMF management company for qualified investors to ensure proper maintenance of the property included in the fund, including normal and safe operation of such property, and the use or preservation of such property in accordance with the purposes for which it was acquired, if such property has not been deposited with the fund depositary;
- the possibility of combining CEMF management with acting as the sole executive body of a personal fund;
- a ban on offering restricted units and shares to the public, including through advertising, and to non-qualified investors.
We would be happy to discuss the possibility of applying the changes introduced in the Law to your specific situation and offer our professional assistance.
