Non-retail pooled funds

Available vehicles

What are the main legal vehicles used to set up a non-retail fund? How are they formed?

French non-retail funds may generally be set up by using one of the following legal forms (ie, whether they are constituted under a corporate form or not incorporated):

  • a corporate form: a French corporation with variable share capital subject to general corporate regulations applicable to limited liability companies and to specific asset management regulations; or
  • a mutual fund (FCP): a form of co-ownership that issues units to be subscribed to by its unitholders. The FCP is the most common form of investment fund on the French market (except for real estate funds). An FCP (which is not a legal entity but a co-owned form of assets) must be established by a French asset manager (SGP) (which represents the FCP and manages its assets).

 

Many types of non-retail funds must be licensed by the Financial Markets Authority (AMF) (such as real estate funds), whereas professional venture capital funds are not subject to any licensing requirements, but need only be notified to the AMF within one month of their constitution (such as professional venture capital funds (FPCIs)).

Laws and regulations

What are the key laws and other sets of rules that govern non-retail funds?

The key rules that govern French non-retail funds are provided in the monetary and financial code, the General Regulations of the AMF (RGAMF) and the articles of association or fund rules, and in the relevant fund’s prospectus (if any).

The key rules common to each type of non-retail investment funds are the following:

  • more flexible licensing requirements;
  • more flexible investment policy rules; the diversification rules are frequently relaxed compared to retail funds, and some non-retail funds are authorised to determine contractually their investment policy (such as specialised professional funds);
  • relaxed liquidity rules; and
  • relaxed distribution and liquidation rules.
Authorisation

Must non-retail funds be authorised or licensed to be established or marketed in your jurisdiction?

Certain types of non-retail funds must be licensed by the AMF before being established and marketed (such as for the professional real estate funds (OPCI), used for real estate investments), whereas other non-retail funds, such as the FPCIs are not subject to any licensing requirements but need only be notified to the AMF within one month of their constitution.

All the non-retail regulated funds listed in the MFC, whether they are licensed or merely notified to the AMF, are regulated funds and are therefore supervised by the AMF.

Marketing

Who can market non-retail funds? To whom can they be marketed?

The marketing of non-retail investment funds on the French territory falls under the provisions of French regulations (MFC and RGAMF) applying to the provision of investment services, such as reception and transmission of orders, investment advice and, under certain conditions, the placing of financial instruments.

In addition, marketing of AIFs may trigger the application of French solicitation rules. However, it should be noted that the solicitation regime will not apply if the targeted investors qualify as professional clients within the meaning of French regulations.

Investment in non-retail funds is open to professional investors (within the meaning of of the Markets in Financial Instruments Directive (MiFID)) and also to any investor subscribing to units or shares of the funds for more than €100,000 or, with respect only to professional venture capital funds and specialised investment funds, to individuals and companies subscribing to the units or shares of the funds for more than €30,000 and meeting certain criteria (concerning, in particular, their previous experience in the private equity sector).

Ownership restrictions

Do investor-protection rules restrict ownership in non-retail funds to certain classes of investor?

The marketing of non-retail investment funds on the French territory falls under the provisions of French regulations (MFC and RGAMF) applying to the provision of investment services, such as reception and transmission of orders, investment advice and, under certain conditions, the placing of financial instruments.

In addition, marketing of AIFs may trigger the application of French solicitation rules. However, it should however be noted that the solicitation regime will not apply if the targeted investors qualify as professional clients within the meaning of French regulations.

Investment in non-retail funds is opened to professional investors (within the meaning of MiFID) and also to any investor subscribing to the units or shares of the funds for above €100,000 or, with respect only to professional venture capital funds and specialised investment funds, to individuals and companies subscribing to the units or shares of the funds for above €30,000 and meeting certain criteria (concerning in particular their previous experience in the private equity sector).

Managers and operators

Are there any special requirements that apply to managers or operators of non-retail funds?

The SGPs managing non-retail funds are generally subject to the same licensing requirements as those applicable to the SGPs of retail funds.

As non-retail funds necessarily qualify as AIFs, their SGPs will generally need to have an AIFM licence. The scope of the licence will depend on the type of investment strategy implemented by the AIF.

Under the French licensing procedure, the licence granted by the AMF to the SGP is not generic but specific to the type of investment strategy implemented. This means that an SGP authorised to manage professional venture capital funds will need to be further authorised by the AMF if it wishes to manage professional AIFs investing, for instance, in real estate assets or receivables. In addition, the SGP may also ask to restrict its AMF licence to funds subscribed to by professional clients only.

Tax treatment

What is the tax treatment of non-retail funds? Are any exemptions available?

Each type of investment vehicle is governed by specific (and sometimes complex) tax rules; the following, therefore, only constitutes a very brief and high-level summary.

Funds that do not have a legal personality (including all types of FCPs) are not generally subject to tax at the level of the fund. 

Funds that do have a legal personality (such as SICAVs and venture capital funds) generally fall within the scope of French corporate income tax but are generally exempted from such tax (in respect of all or certain items of income). 

Capital gains earned by resident investors are in most cases taxable.

Asset protection

Must the portfolio of assets of a non-retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?

The assets of the non-retail funds benefit from the same protections as the retail funds.

However, some relaxed rules apply due to the professional nature of such funds. In particular, regarding French hedge funds constituted as specialised investment funds and general-purpose professional funds, it is possible for the French depositary to enter into an agreement with the hedge fund whereby it limits its obligation of return of the financial instruments under custody in the event of delegation of this function to a third party.

Governance

What are the main governance requirements for a non-retail fund formed in your jurisdiction?

The governance rules applicable to French retail funds also apply as a matter of principle to French non-retail funds.

It is, however, not uncommon in French non-retail funds (in particular, in French professional private equity funds) to have an advisory committee set up with representatives of investors. The recommendations or advice formulated by the advisory committee must always be non-binding for the SGP, according to the principle of autonomy of management.

Reporting

What are the periodic reporting requirements for non-retail funds?

The reporting requirements applicable to French retail funds also apply as a matter of principle to French non-retail funds.

Specific additional reporting may be provided by the portfolio management company to investors in the non-retail funds, as specified in the prospectus of the regulation of the said fund.

Law stated date

Correct on

Give the date on which the information above is accurate.

17 April 2020.