Non-retail pooled funds

Available vehicles

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

Different types of legal vehicles may be used for the establishment of a non-retail fund and, in general, the fund type will govern the choice of vehicle. In this context, and from a Swedish perspective, non-retail funds comprise AIFs.

Owing to the investment restrictions described in question 17, a Swedish hedge fund may only be formed as a special fund intended for the public (ie, retail investors), and therefore of an open-ended nature.

Swedish private equity funds and real estate funds are primarily formed as limited partnerships, but may also be formed as limited liability companies. An essential difference between a retail fund and a non-retail fund is that the latter does not have to be separate from the fund manager and merely consist of the fund assets. Consequently, a non-retail fund can be a legal person with the ability to assume rights and obligations. Furthermore, a non-retail fund could be internally or externally managed. In the former case, the fund is the manager and the entity is required to possess all functions necessary to be able to comply with applicable laws and regulations. It should be noted, however, that Swedish legislation does not allow for a limited liability company to have variable capital, which impedes the establishment of non-retail funds as limited liability companies and of any nature other than open-ended.

Laws and regulations

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

The sets of rules governing non-retail funds are the AIFMA and the SFSA’s Regulations FFFS 2013:10 regarding alternative investment fund managers.

Authorisation

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

There is no requirement to obtain authorisation for the establishment of a non-retail fund. The activities requiring authorisation are, instead, management and marketing of a non-retail fund. However, where the fund is internally managed, the establishment would, in practice, require authorisation. A private equity fund would, for instance, need to apply for authorisation with the SFSA upon its establishment, which may in some cases correspond to its ‘first closing’. A non-retail fund may be marketed without authorisation under the circumstances set out in question 9.

Marketing

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

Anyone can market a non-retail fund that has been authorised for marketing in Sweden, provided that the marketing does not go beyond the concept of ‘promotion’. The marketing entity would not need to be licensed or authorised unless the marketing activities include offering of the funds or otherwise would require a MiFID II licence or authorisation pursuant to the SMA.

As a main rule, non-retail funds may only be marketed to professional investors, as defined in the SMA. However, it is possible to market certain non-retail funds that have been formed as AIFs to retail investors.

In order to market a non-retail AIF to retail investors, the units or shares of the AIF have to be admitted to trading on a regulated market (ie, an exchange or a multilateral trading facility) and there must be a key investor information document available for the fund.

Further, it is possible to market AIFs formed as private equity funds to a particular category of Swedish non-professional investor. This is permitted under the prerequisites that units in the fund may not be redeemed within five years of the first investment and that the fund generally invests in issuers or non-listed companies for the purpose of acquiring control. In addition, the investor must commit to investing an amount of at least €100,000 and confirm knowledge of the risks associated with the investment in writing.

Ownership restrictions

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

No. Even though a non-retail fund may only be marketed to retail investors subject to certain prerequisites, there is no prohibition on an investment being made by a retail investor on a reverse-solicitation basis.

Managers and operators

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

Fund managers of AIFs directed at professional investors are required to establish arrangements to avoid the funds being marketed to retail investors. In general, however, there are fewer requirements imposed on managers of non-retail funds than on managers of retail funds.

Tax treatment

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

Non-retail funds organised as UCITS funds, special funds or limited liability companies are subject to the same tax regulations as described for retail funds. Individuals who are tax resident in Sweden and invest in non-retail funds are subject to the same tax regulations as described for individuals in retail funds. See question 18.

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?

For each AIF, the assets must be held by a separate custodian. The custodian does not have to be established locally but must have its registered office within the EEA. The obligation to appoint a custodian is intended to provide satisfactory protection of a fund’s assets in case of insolvency proceedings involving the manager. Similar to UCITS, the management of an AIF formed as a special fund may be assumed by the custodian.

Governance

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

The most prominent governance requirements include conducting operations in a professional manner so that the public’s confidence in the fund market is maintained, as well as adequate risk and liquidity management, handling of potential conflicts of interest and establishing a remuneration policy compatible with such requirements.

The authorisation process involves submission of various documents and upon authorisation being granted, the non-retail fund and the manager (as the case may be) must be registered with the SFSA. The management company of a non-retail fund must have a board of directors consisting of at least three members.

Reporting

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

The reporting requirements regarding non-retail funds vary depending on the fund type and the value of assets under management. In general, the manager or the fund (as the case may be) must report more frequently and in greater detail in relation to funds that are marketed to retail investors and whose asset value exceeds certain thresholds. The frequency of such reporting varies between quarterly, semi-annually and annually. Reports are submitted online using software provided by the SFSA. As from 1 August 2017, Swedish-based managers, and branches based in Sweden, are required to submit reporting in relation to their measures against money laundering and terrorism financing on an annual basis.