III – Investment Vehicles: The Angolan Legal Regime for Investment Funds
1. Introduction
Investment funds and other collective investment undertakings (for simplicity, from here on out we will use only the expression “funds”) play a vital role in mobilizing capital and channelling it towards productive investments, driving economic growth and providing individuals and institutions with opportunities to participate in the financial markets. In Angola, the legal regime for investment funds is designed to promote investment and ensure a transparent and well-regulated environment for investors.
The primary legislation governing investment funds in Angola is Presidential Decree-Law No. 7/13, enacted on October 11, 2013 (“Regime”). This law establishes the legal framework for the creation, operation, and supervision of investment funds in the country. The Angolan Securities Commission (Comissão do Mercado de Capitais – CMC) is the regulatory authority responsible for overseeing investment funds and ensuring compliance with the law.
On the other hand, the incorporation of management entities is governed by Law no. 14/21 of May 19, 2021, the “General Regime for Financial Institutions”.
2. Definition and types of investment funds
Investment funds are financial entities that gather resources from various investors to perform investments pursuant to a pre-defined investment policy. They can be structured as companies, autonomous estates in contractual form (or other forms which may be defined by legislation). A key feature of investment funds is the diversification of assets, which allows investors to reduce the risks associated with the performance of a single investment. In addition, investment funds offer investors access to markets and financial assets that would otherwise be inaccessible.
The assets of the investment funds are represented by participation units, without nominal value, of identical content and which grant unit holders equal rights.
3. Securities Investment Funds
Securities investment funds are those which invest in specific financial instruments and focus their investment policy in tradeable financial products. These may be divided in certain sub-categories, with their own specificities.
In any case, all these sub-types must comply with the following limits:
- securities investment funds may not accumulate more than 20% of its net asset value in transferable securities, money market instruments, deposits and exposure to financial derivative instruments traded outside of a regulated market with the same entity;
- securities investment funds must have, on a permanent basis, at least 2/3 of their net asset value invested directly or indirectly in bonds;
- the minimum limit invested, directly or indirectly, in bonds is 1/3 (one third) in the first 3 (three) months of activity.
3.1 Real estate funds
The assets of a real estate fund may consist of real estate (either in rem rights in real estate properties or participations in real estate companies) and liquidity. The real estate may form part of the assets of a real estate fund in the form of ownership rights, surface rights or other rights with equivalent content, and must be free of encumbrances or charges that make its transfer exceedingly difficult. The real estate held by real estate funds corresponds to urban and rural properties and autonomous units of urban properties.
The legal regime of real estate funds subdivides this type of funds in:
- real estate investment funds (“FII”):
- open-end real estate investment funds;
- closed-end real estate investment funds;
- mixed real estate investment funds.
- real estate investment companies (“SII”):
- variable capital real estate investment companies (“SII-CV”);
- fixed capital real estate investment companies (“SII-CF”).
- special real estate investment funds:
- real estate funds for residential rentals;
- real estate funds for agricultural holdings;
- real estate funds for farming;
- real estate funds for urban renovation;
- real estate funds for industrial exploitation;
- real estate funds for mixed use.
The real estate of the investment funds must be valued by at least 3 (three) independent expert valuers in the following situations:
- prior to their acquisition and sale, where the reference date of the valuation of the property may not be more than 6 (six) months prior to the date of the contract in which the price of the transaction is fixed;
- prior to the development of construction projects, namely to determine the value of the property to be constructed;
- whenever circumstances occur that may lead to significant changes in the value of the property;
- otherwise, at least every 2 (two) years.
As referred, the assets of real estate funds may also comprise equity participations in real estate companies provided certain limits are complied with, as for example:
- the corporate object of the real estate company falls exclusively within one of the activities that may be directly developed by real estate funds;
- the assets of the real estate company must comprise a minimum of 75% of real estate that may be directly integrated in the portfolio of the real estate fund;
- the real estate company does not hold shares in any other companies.
Real estate funds are especially forbidden:
- to encumber their assets in any way, except to obtain financing, within certain limits;
- to grant credit to third parties, including providing guarantees;
- to enter into promissory sale agreements regarding real estate property not yet owned by the investment fund.
3.2. Management Entities
The management of investment funds may only be exercised by management entities. The management entities of investment funds are financial institutions which are legally authorised for this purpose and subject to registration with the CMC.
The management entity should maintain its business organisation equipped with the human, material and technical means necessary to provide its services under adequate conditions of quality, professionalism and efficiency, in order to avoid errors and faulty procedures. As a matter of relevance, we highlight the following duties:
- adopt an organizational structure and decision-making processes that specify the channels of communication and assign roles and responsibilities;
- ensure that the members of the administrative body and the persons who effectively direct the activity of the management entity, its employees and subcontracted entities, involved in the exercise of management activities, are aware of the procedures to be followed for the correct performance of their responsibilities;
- to hire employees with the qualifications, knowledge and technical capacity necessary for the execution of the responsibilities attributed to them;
- to keep records of their activities and internal organization;
- to adopt appropriate systems and procedures to safeguard the security, integrity and confidentiality of information;
- to adopt a business continuity policy;
- to establish internal control policies and mechanisms;
- to put in place procedures to avoid conflicts of interest.
Regarding in particular real estate investment funds, the respective management entities must have human resources which are qualified to provide services of analysis and monitoring real estate projects or, in case there are no such human resources, sub-contract those services.
4. Depositaries
The depositary is responsible for safe-keeping the assets held by investment funds. One of its crucial roles includes securely holding and recording the fund’s securities. Additionally, the depositary handles the processing of subscription and redemption requests from investors and ensures that they receive their rightful share of profits from the fund.
Furthermore, the depositary plays a role in safeguarding investors’ interests. This involves diligent oversight to ensure that all legal and regulatory requirements governing the fund’s operations are being met throughout its activities.
The depositary must prepare an annual report for each investment fund for which it exercises functions, for the financial year ending on the previous 31st December, which must be sent to the CMC within the same period of time that the reports and accounts of the investment fund are sent.
The report must contain a detailed description of the supervision activities undertaken, specifically in relation to certain matters, such as:
- Irregularities detected in relation to:
- compliance with the provisions of the applicable legislation and the instruments of incorporation of the investment fund, including limits of investment and indebtedness;
- the physical or financial settlement of transactions carried out on behalf of the investment fund;
- the payment of income of the investment fund; and
- the calculation of the net asset value of the investment fund.
- Conflicts of interests, including, specifically:
- identification of the situations detected of potential conflicts of interest;
- an appraisal of the procedures adopted by the management entity in relation to those situations of conflicts of interest.
- Other information.
In the preparation of the report, the depositary may base itself on the information made available by the management entity of the investment fund, by the marketing entities or by the auditor, reconciling, whenever possible, such information with that which the depositary gathers by its own means, specifically that which is available on internal or public databases, certifying, in any event, the sufficiency and veracity of that information.
5. Incorporation process
Setting up an investment fund depends on authorisation from the CMC. This authorisation follows a specific procedure which consists of submitting an application to the CMC. The management entity is responsible for submitting the application to the CMC and it must be accompanied by the following documentation:
- draft incorporation documents (notably the fund management regulation);
- draft contracts to be concluded by the management entity with the depositary, with the marketing entities and with other service providers, in particular with entities to be subcontracted;
- documents proving the acceptance of duties by all entities involved in the investment fund’s activity;
- identification of:
- auditor registered with the CMC;
- investment adviser registered with the CMC, if applicable;
- expert real estate appraisers registered with the CMC, in the case of real estate investment funds;
- a statement showing how the investment policy or target investors of the investment fund differ from that of other investment funds under the responsibility of the management entity.
As far as deadlines are concerned, under the terms of the law, the CMC may request additional information or suggest any changes to the projects it deems necessary, and the applicant must comply with these requirements within 30 days, failing which the application will lapse. The uthorization notification is served within 45 days of receipt of the application, accompanied by the necessary information. However, when the CMC requests additional documents or information or requests modifications to the projects submitted, it has at least 15 working days from the date on which such requests are accepted to take its final decision, in the event that the remaining initial deadline is shorter.
6. Winding-up and liquidation
Investments funds are dissolved by (i) expiry of the period for which they were set up; (ii) decision of the management entity, based on the interests of investors, provided that the investment fund has been in business for at least one year; (iii) resolution of the meeting of fund investors, where applicable; (iv) in the situations provided for in the articles of association, if it is a corporate fund; (v) expiry of authorisation; (vi) revocation of authorisation; (vii) deregistration, dissolution or any other reason that makes it impossible for the management entity to continue to perform its functions as fund manager if, within 30 days after the fact, the CMC declares that it is impossible to replace it.
The liquidation of the assets of investment funds must take place within 30 days of dissolution, in the case of securities funds, or within 180 days of dissolution, in the case of real estate funds, and the CMC may, by means of a duly reasoned decision, extend these deadlines in exceptional cases and at the request of the management entity.
Finally, the investment fund is considered terminated on the date of receipt of the liquidation accounts by the CMC.
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