The Office of the Securities and Exchange Commission (SEC) has amended the investment regulations for Thai retail private funds, mutual funds and provident funds (collectively, funds). The amendment came into effect on 16 January 20171. This Client Alert intends to flag the key changes that have been made.
1. Debt Instruments
1.1 Rules governing onshore and offshore permissible debt instruments (including structured notes) have been tightened to be more restrictive, as outlined below.
1.2 In order to qualify for the general single entity limit, long-term debt instruments must, among other requirements, be registered in a regulated market2 (e.g. ThaiBMA), and information on the instruments must also be publicly available; for short-term debt instruments, the condition on publicly available information can be waived if they are guaranteed by certain financial institutions.
1.3 By tightening their characteristics, certain types of onshore and offshore debt instruments can now be subject to lower investment limits. For example, with onshore structured notes issued on a private placement basis, in the past, a fund could invest up to 20 percent of its net asset value (NAV); this will now be lowered to 5 percent, in terms of the single entity limit.
1.4 Investment in bills of exchange or promissory notes issued for payment of trade debts is now permitted, so long as the instrument is guaranteed by certain financial institutions, e.g. commercial banks.
2. Infrastructure Funds (IFFs) / REITS
In the past, investment in IFFs or REITS was subject to a single fund limit (≤ 15 percent in the case of listed funds, and ≤ 5 percent in case of non-listed funds), regardless of whether those funds were diversified funds. However, funds can now invest in diversified IFFs or REITS (i.e. IFFs or REITs that invest in several non-related projects or real estate developments) without being subject to any single fund limits.
3. OTC Derivatives
The product limit on OTC derivatives for non-hedging purposes has been lifted. Funds can now invest in OTC derivatives for non-hedging purposes without being subject to any limit, so long as the AMC can manage the fund liquidity.
4. Structured Notes
The investment limit for structured notes issued by SPV and backed by collateral has been relaxed by applying a look-through concept; i.e. the single entity limit will not be calculated at SPV issuer level but at collateral issuer level. This is provided that a legal opinion is obtained confirming that the security interest made to secure the notes, and the ring-fencing mechanism, is valid and enforceable under the applicable laws (the SEC uses the term "specific and perfect collateral").
5. Offshore Fund Units Fund Unit
Thai funds can invest in an offshore fund that invests in junk products without having to ensure that the offshore fund's instrument complies with the single entity limit.