Retail fundsAvailable vehicles
What are the main legal vehicles used to set up a retail fund? How are they formed?
The main legal vehicles for setting up a retail fund are: a UCITS open-ended fund, an AKES, an AEEX and an AEEAP. Since the recent amendment of article 109 of Law No. 4209/2013, implementing the AIFMD, all types of funds can now be marketed and sold to retail investors under the conditions set out therein. Therefore, all existing fund types are retail funds. The main characteristics of the said fund types are the following.
This is a fund that is compliant with the UCITS IV Directive. UCITS are structured as open-ended collective investment schemes and can take the form of a mutual fund or a variable capital investment company. The assets of a mutual fund must be managed by a dedicated fund management company, whereas a variable capital investment company may be self-managed.
This is a closed-ended fund. Its manager must have been authorised as an AIFM. Its establishment requires the execution of an agreement between its unitholders, the fund manager and a custodian. The HCMC supervises the operation of AKESs. Its fund manager must have an initial share capital of at least €100,000 and the total assets of the fund must be at least €3 million.
This is a closed-ended fund (in corporate form), whose initial share capital must be at least €500,000. Before establishment, an AEEX must obtain approval from the HCMC. To this end, it must file with the HCMC documentation about its internal policies and procedures and evidence about the appropriateness of its directors, managers and shareholders.
This is a closed-ended fund investing in real property. It is managed by a fund management company with an initial share capital of at least €25 million, which is fully payable upon establishment of the company. The fund management company must be 51 per cent controlled by an authorised credit institution or insurance company.Laws and regulations
What are the key laws and other sets of rules that govern retail funds?
The principal laws governing retail funds are as follows:
- UCITS: Law No. 4099/2012 (implementing UCITS IV), HCMC Decisions Nos. 15/633/20.12.2012; 16/633/20.12.2012; 17/633/20.12.2012 and 1/756/18.5.2016 and HCMC Circular No. 55 (in English);
- AIFs (generally): Law No. 4209/2013 (implementing the AIFMD);
- AKESs: Law No. 2992/2002;
- AEEXs: Law No. 3371/2005; and
- AEEAPs: Law No. 2778/1999.
Must retail funds be authorised or licensed to be established or marketed in your jurisdiction?
Yes. Retail funds must be authorised by the HCMC in order to be established or marketed in Greece.Marketing
Who can market retail funds? To whom can they be marketed?
Only authorised entities (fund management companies, investment firms and credit institutions) can market retail funds. UCITS funds can be marketed to both retail and professional investors.
All funds that qualify as AIFs (ie, AKESs, AEEXs and AEEAPs) can be marketed to both professional and retail investors.
Professional investors are defined within the meaning of Annex II of Law No. 4514/2018, implementing MiFID II. These are deemed to include the following:
- credit institutions;
- investment firms;
- other authorised or regulated financial institutions;
- insurance companies;
- collective investment schemes and management companies of such schemes;
- pension funds and management companies of such funds;
- commodity and commodity derivatives dealers;
- local corporations;
- portfolio investment companies and other institutional investors;
- large undertakings meeting at least two of the following requirements: a balance sheet total of at least €20 million, a net turnover of at least €40 million and ownership of at least €2 million in funds;
- national and regional governments, public bodies that manage public debt, central banks, international and supranational institutions such as the World Bank, the International Monetary Fund, the European Central Bank (ECB), the European Investment Bank and other similar international organisations; and
- other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.
Retail investors are investors other than those described above as professional investors, provided that the following conditions are met:
- the AIF is distributed to Greek investors by either its fund manager or a Greek regulated entity (credit institution, investment firm or investment intermediation firm);
- the AIF is duly supervised by the competent authority of its home jurisdiction;
- the distribution of units or shares of the AIF to non-professional (retail) investors is permitted by the regulatory regime of its home jurisdiction, as well as by the constitutional documents and/or its fund regulation;
- the retail investor undertakes to invest at least € 100,000 per fund; and
- the fund manager receives information from the investor in respect of his or her knowledge, experience and risk tolerance regarding the investment in the AIF, in order to assess whether the AIF is suitable to such an investor. If the fund manager deems, on the basis of such information, that the AIF is not suitable for the particular investor, it must provide a warning in this respect. If the investor does not provide sufficient information, the fund manager must warn him or her that it is unable to assess whether the AIF is suitable for him or her. Such warnings can be provided in a standardised form (article 41 of Law No. 4209/2013, as recently amended by adding further requirements to those already in place).
Are there any special requirements that apply to managers or operators of retail funds?
Other than those set out in question 3, there are no special requirements applicable to managers or operators of retail funds.Investment and borrowing restrictions
What are the investment and borrowing restrictions on retail funds?
Depending on their type, each fund is subject to different investment and borrowing restrictions.
The UCITS IV rules on permitted investments and restrictions generally apply (articles 59 to 60 of Law No. 4099/2012, implementing articles 51 to 54 of UCITS IV).
There are no specific investment or lending restrictions applicable to all AIFs. However, each particular type of fund (AKES, AEEX and AEEAP) has its own investment restrictions, as described below.
An AKES may invest in businesses established in Greece or another EU member state. It may also invest in businesses established in third countries provided that such businesses are active in the production or rendering of services in Greece. It may invest in listed or non-listed equity. In the case of investment in listed equity, the AKES may not participate in the share capital of an issuer with a percentage of less than 15 per cent. It may also invest in business bonds, also subject to the 15 per cent condition. Finally, it may deposit its reserves in bank accounts and money market instruments.
An AKES may not invest more than 20 per cent of its assets to transferable securities of the same issuer. It may also not invest to transferable securities of entities related to a unitholder or issuers whose share capital belongs to a unitholder or his or her relatives, to a percentage equal to or greater than 25 per cent. The aforementioned restrictions do not apply if the investment is approved by 100 per cent of the unitholders and on the additional condition that the said investment does not exceed 30 per cent of the total assets of the AKES.
The investments of an AEEX shall comprise transferable securities, money market instruments, UCITS, non-UCITS, deposits and derivatives. AEEXs may not invest in precious metals and may not enter into borrowing to an extent greater than 35 per cent of the current value of their assets. AEEXs’ investments are also subject to certain qualitative restrictions for the purpose of avoiding exposure to a single issuer and to the same type of financial instruments (eg, units of other collective investment schemes).
An AEEAP may only invest in the following assets: real estate at a rate of at least 80 per cent of its assets; money market instruments; and cash, deposits or equivalent liquidity credit securities, up to 10 per cent of its assets. An AEEAP is not permitted to invest in precious metals or warrants related thereto.Tax treatment
What is the tax treatment of retail funds? Are exemptions available?
The establishment of a UCITS, an AEEX or an AEEAP is generally exempted from any tax, duty and charges. Incomes of UCITS from transferable securities are also exempted from any tax or duty, with the exception of income from dividends distributed by Greek issuers, which is subject to a withholding tax with the respective rate of 10 per cent. In respect of interest rates from bond loans in particular, the exemption applies under the condition that the respective bonds have been acquired at least 30 days before their coupon date.
The UCITS manager is obliged to pay a tax calculated on a daily basis on the six-month average of its assets. The tax rate, depending on the type of investment of the fund, ranges between 10 and 11 per cent of the applicable ‘main refinancing operations rate’ determined by the ECB.
Any income and capital gains obtained by unitholders from their participation in a UCITS fund is free of all taxes, duties and charges.
The AEEAP and its subsidiaries are obliged to pay an annual asset tax that is equal to the 10 per cent tax of the respective ECB current intervention rate (reference rate), incremented by one percentage point and calculated on the average of their investments, plus their reserves, at current market prices as shown in the biannual investment statements. This tax rate cannot be lower than 0.75 per cent on an annual basis. The tax is payable to the competent tax authority within the first 15 days of the month following the period recorded in the biannual investment statement. Upon payment of this tax, the tax liability of the company and its shareholders is exhausted.
There are no similar exemptions for other types of funds and therefore the respective revenues are taxed with the applicable income tax rate. Unitholders of an AKES are taxed as co-owners of the assets that belong to the AKES for any income obtained thereby.Asset protection
Must the portfolio of assets of a retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?
The assets of funds must be held by a separate custodian, which must be a credit institution licensed either in Greece or in another EU member state and subject to the Capital Requirements Directive (CRD). The applicable provisions of Law No. 4261/2014, implementing the CRD, govern the keeping of the assets and cash of the funds.Governance
What are the main governance requirements for a retail fund formed in your jurisdiction?
The main governance requirements for UCITS funds can be summarised as follows. A UCITS must:
- be authorised by the HCMC;
- have in place adequate regulations or constitutional documents;
- adhere to specific rules regarding the evaluation of its assets;
- be managed by an authorised fund management company;
- appoint an authorised credit institution or investment firm (which fulfils the preconditions specified in article 36, paragraph 1(b) of Law No. 4099/2012) as custodian for holding its assets;
- provide specific information and documents to investors;
- adhere to specific investment rules and restrictions;
- have in place and comply with specific risk management rules and policies;
- adhere to specific transparency requirements (publication of annual and semi-annual reports); and
- adhere to specific promotion and advertising rules.
The main governance requirements for AIFs can be summarised as follows:
- AIFMs must ensure the proper and independent evaluation of all AIFs they manage;
- annual reports must be published for every AIF managed;
- proper procedures and policies must be in place for ensuring that delegation is not affecting compliance with the applicable provisions;
- appropriate information must be provided to investors;
- reports must be submitted to the HCMC; and
- notifications must be made in the case of significant shareholdings in non-listed companies and in the case of acquiring control over such companies.
What are the periodic reporting requirements for retail funds?
UCITS are obliged to make available to investors an annual and a semi-annual report with the content described in Law No. 4099/2012 (article 77), their prospectus (article 76) and a key investor information document. The prospectus shall consist of the documents specified in Schedule A of Annex I of Directive 2009/65/EC, whereas the annual and semi-annual report shall consist of all the information included in Schedule B of the said Annex (this is detailed in HCMC Decision No. 17/633/20.12.2012).
AIFMs must make available to investors an annual report for each fund they manage. The annual report must have the content specified in Law No. 4209/2013, implementing the AIFMD (article 23), including at least their balance sheet or statement of assets and liabilities, their income and expenditure account, an activities report and the total remuneration amount - both fixed and variable - of both ordinary staff and senior management.
AIFMs must also report to the HCMC on the principal markets and instruments in which they trade on behalf of the AIFs they manage. The information to be included in the said reporting is also specified in article 24 of Law No. 4209/2013, implementing article 24 of the AIFMD without significant changes.Issue, transfer and redemption of interests
Can the manager or operator place any restrictions on the issue, transfer and redemption of interests in retail funds?
Restrictions on the issue, transfer and redemption of interests in funds are specified by the respective laws and regulations and the fund manager may not place additional restrictions.