Collective investments in real estate or development projects are rather common in Estonia. One party with a plot and designs and another with money or a group of friends investing together are just some examples. These joint activities are sometimes referred to as investment clubs. Amendments to the Investment Funds Act, which entered force in May, aligned Estonian legislation with the Alternative Investment Fund Managers Directive. However, even relatively modest investment clubs may now fall under the extensive and vague definition of alternative funds provided in the Directive and the Act.

Under the Act, an alternative fund is a pool of assets, or a person established for collective investment, which does not fall under the definition of other investment funds. As for investment clubs, significant exceptions include pools of assets actively managed by the owners of the assets or assets pooled by families or similar groups.

Special attention is required from those developing real estate or other projects with contributions from investors who are not family members or who do not actively participate in project implementation on a daily basis. These persons may have unwittingly become fund managers within the meaning of the amended Act.

If an alternative fund does exist, the fund manager must register with the Financial Supervision Authority. Both the manager and the alternative fund must file information for registration. Registry data should be updated once a year. Failure to do so may result in a fine, but also investors’ claims against a fund manager in case of failed investments.

The existence of an alternative fund may also have other consequences besides the requirement to register. For example, fund status may create an auditing requirement or prevent deduction of input VAT for some services. The provisions are new and practice is lacking, so that some consequences may be hard to predict.

However, the amendments are already in force and should be taken into account when planning new activities. Existing projects should have been brought into compliance with the Act by 22 July. Hopefully, the supervisory agency will issue more specific implementation guidelines to clarify the situation.