As of 1 January 2015 Lithuania has implemented the EU directive on Alternative Investment Fund Managers (2011/61/EU) this way catching up with other member states of the EU that have created a lighter regulatory regime for investment undertakings that market their units to professional investors.
The Law on Management Companies of Investment Undertakings for Professional Investors (hereinafter – the Law) adopted for this purpose allows two kinds of forms in which collective investment undertakings can be created. These are: investment fund or investment company. Investment company can be created in one of the following legal forms: public limited company (akcinė bendrovė), private limited company (uždaroji akcinė bendrovė), general partnership (tikroji ūkinė bendrija) or limited partnership (komanditinė ūkinė bendrija). The range of possibilities is wider than in case of undertakings for collective investment in tradable securities, as established through implementation of EU directives 2001/107/EC and 2001/108/EC (hereinafter – UCITS) and other investment funds for non-professional investors, as legal forms of private limited company as well as general or limited partnership are not available for the latter.
Investment funds must be managed by a management company, while investment companies can choose to manage the funds on their own, or to transfer these functions to a management company. If management functions are not transferred, the investment company must hold initial capital of at least EUR 300 000.
The management company, managing a collective investment undertaking for professional investors must be established in the form of a public limited company (akcinė bendrovė) or a private limited company (uždaroji akcinė bendrovė). The minimum capital for management company is established at EUR 125 000. Additional requirements of own funds apply when the value of managed portfolio exceeds EUR 250 million. The management company must hold a license, which is issued by the Bank of Lithuania within 3 months after receipt of all required information.
The Law sets exemptions for certain management companies. Exempted are management companies using financial leverage when they directly or through connected companies manage investment undertakings with the property of less than EUR 100 million, excluding the property within UCITS. For management companies not using financial leverage the maximum of managed property is set at EUR 500 million with additional requirement that the managed investment undertakings provide no right to investors to request redemption or return of contributions for at least 5 years after establishment. Such management companies are not required to hold a license under this Law, however they have to register with supervisory authorities and at least once per 6 months provide information about investment units they distribute as well as main positions and risk concentrations of the investment undertakings they manage.
The Law sets prudential and operational requirements for management companies licensed under this Law. It also requires to assess the value of net assets and the price of investment units/ shares of the undertaking at least once per year; to submit audited annual financial statements to supervisory authorities; and contains an elaborate list of information that must be provided to investors before starting to invest and on an on-going basis.
As compared to UCITS, there is an extended choice of depositories for the property of investment undertakings. Besides the licensed credit institution, it also permits a licensed brokerage company with authorized capital of at least EUR 730 000 to act as a depository. It requires the depository of investment undertaking established in the EU to be established in the same country as the respective investment undertaking.
Certain specifics of investment strategies employed by investment undertakings for professional investors are regulated. The maximum financial leverage that the management company may use for each of the undertakings it manages together with the extent of collateral or guarantee repeatedly used to secure performance under financial leverage agreement must be established upfront, after considering a number of factors, including investment strategy of the respective undertaking, sources of leverage, extent of collateral used, ratio between assets and obligations and so on. The management company must be able to furnish proof to supervisory authorities that the limits chosen are well-founded and adhered to.
The Law also incorporates certain safeguards for companies when investment undertakings acquire their share capital. These range from requirements of notification to restrictions on reallocation of the assets of such company and prohibitions to diminish its share capital.
The Law deals not only with intra-EU activities of investment funds, but also regulates the management by Lithuanian management companies of investment undertakings established in non-EU countries, the management by non-EU management companies of investment undertakings established in Lithuania as well as distribution in Lithuania of the units of investment undertakings established in non-EU countries.