Actions required by Private and Professional Funds previously recognised under the Mutual Funds Act

The Securities and Investment Business Act, 2010 (SIBA) came into force on 17 May 2010. The transitional period for private and professional funds which were previously recognised under the Mutual Funds Act, 1996 (MFA) ends on 31 December 2010 at which point such funds are required to be fully compliant with SIBA. If they have not already done so, funds should take action now to ensure full compliance.

A short form guide as to the requirements of SIBA for private and professional funds can be accessed here.

We draw the following, in particular, to your attention:

1. Update of Fund Documents.

Any private or professional fund which is to make an offer or invitation to purchase or subscribe for its fund interests on or after 31 December 2010 must amend its offering document to include the prescribed investment warning. The investment warning must be included in a prominent place in the offering document which is being interpreted as either on the front cover or within the introductory section. The amended offering document must be filed with the Commission within 14 days of its issue. A fund which does not have an offering document must provide the investment warning to each new investor as a separate document. In addition, the subscription agreements must be amended to include a written acknowledgement from any new investor that it has received, understood and accepted the investment warning. The requirements for the investment warning are set out in Regulation 9 of the Mutual Funds Regulations, 2010.

Crucially funds which will not make any offer or invitation to investors or potential investors to subscribe for fund interests on or after 31 December 2010 (because, for example, they are closed to new money or in wind down) are not required to update their offering documents or subscription agreements. However, if at any time in the future an offer or invitation to purchase or subscribe for fund interests is to be made, the fund documents must be updated prior to the offer or invitation being made.

Professional funds should also be aware of the requirement in SIBA to include statements in their constitutional documents (ie memorandum of association or memorandum of limited partnership) as to its professional fund status. Private funds are not effected by this new requirement as they have always been (and continue to be) subject to an equivalent requirement. The Commission has stated in formal guidance that professional funds which are closed to new investors or otherwise winding down their business are not required to amend their constitutional documents to include the prescribed statements but are required to provide written confirmation to the Commission (supported by a board resolution) to this effect. Further, if at a later date, the fund proposes to make any offer to new or existing investors it must amend the constitutional documents to comply with this requirement.

2. Composition of Board.

SIBA requires that all private and professional funds must at all times have at least 2 directors, at least one of which must be an individual. This provision takes effect from 31 December 2010 for funds previously recognised under the MFA. This has been a long standing informal requirement of the Commission so we anticipate it will not impact many funds. However, it is also an opportunity to remind all private and professional funds that all changes to the composition of the board must be notified to the Commission within 14 days of the change.

3. Functionaries.

SIBA requires that all private and professional funds have a manager, an administrator and a custodian at all times. The custodian must be functionally independent from the manager and the administrator. However, funds may apply to the Commission for an exemption from the requirement that it appoint a custodian or a manager. Private and professional funds previously recognised under the MFA are required to comply with this requirement with effect from 31 December 2010.

SIBA also requires that not less than 7 days prior notice be given to the Commission prior to appointment of any new functionary (including custodians, administrators, prime brokers and managers). We anticipate an exemption from the requirement to appoint a custodian will be granted to a fund which can satisfactorily explain what custody arrangements are in place for the fund assets or that a custodian is not necessary given the structure or investment strategy of the fund (eg the fund is a feeder fund where the only asset is the uncertificated fund interests in the master fund). A single application to the Commission may be made for an exemption for two or more funds.