Fri, 29/07/2005 - 08:00
Jesús Mardomingo Cozas and Jorge Canta from the Banking Law and Financial Institutions Group at Cuatrecasas, Madrid, outline the changes in Spain.
Act 35/2003 on Collective Investment Institutions ("Act 35/2003"), implementing UCITS III, introduced a new scenario for the Spanish collective investment institutions ("CII").
In order to develop this Act further, on October 13 2004, the Ministry of Finance published the first Draft Regulation on CII, which included one of the most eagerly-awaited developments: the regulation of hedge funds. However, it established requirements such as the calculation of daily NAV and the impossibility to invest in offshore hedge funds, which rendered the Spanish hedge funds market uncompetitive, since it was too restrictive.
On July 18 2005, a new Draft Regulation on CII (the "Draft") was published. This incorporates some of the industry's demands and establishes a less restrictive regulatory framework by, for example, eliminating the requirement for daily NAV and requiring the funds to provide it quarterly.
This Draft will now have to be discussed by the Council of Ministers before its final enactment (expected in October); however, the final wording of the Regulation is expected to be very similar to this Draft since, as we mentioned, all the comments made by the sector and the regulatory bodies have already been discussed and, in some cases, incorporated.
Both alternative investment funds (Free investment Collective Investment Institutions -i.e., single manager funds) and funds of alternative investment funds (Funds of Free investment Collective Investment Institutions - i.e., multi-manager funds) are provide for.
The principal characteristics of single manager funds and multi-manager funds are the following:
Single funds - Free investment Collective Investment Institutions
Funds of funds - Funds of Free investment CII
According to the above, it seems that - finally - Spain should have a flexible regulatory framework for the launch of Hedge Funds. However, there are still some issues that need further clarification:
(i) the scope of the prime brokerage agreements that can be entered into by Spanish Hedge Funds,
(ii) whether the Spanish Multi-manager Funds can invest in Funds of Funds,
(iii) the actual meaning of "management company located in OECD" for the purposes of eligibilty for investment by Spanish Multi-manager Funds, and
(iv) which requirements would be imposed on the Spanish management companies that intend to manage alternative investment products.
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