In this context, when referring to “portfolio investment funds” we mean “investment vehicles with varying levels of risk for investing in the stock, bond or money markets, typically more liquid and with shorter horizon than venture capital investment funds”. In practice, such vehicles can be both pooled and customized to the needs of a single investor.
BENEFITS OF INVESTING IN UKRAINE WITH A FUND
With the introduction of a new (2001) law on collective investment institutions, economically, technically and safety-wise one of the best ways for portfolio investors to enter Ukraine is through setting up a local fund or buying into existing local funds.(Disclaimeri[i]).
Thus, by contrast to investing in individual securities directly, the investor of the fund will be additionally protected by the regulator, custodians, independent property appraisers and auditors who would check all the aspects of the manager’s actions for prudence, fair and consistent valuations and pricing. The asset manager would be required to provide to the regulator and publish periodic reports on the funds activities, portfolio, asset value, and expenses.
Further, in the case the fund has a corporate form (is set up as a public corporation), it can only be in the form of an open joint-stock company, and the shareholder is additionally protected by the applicable legislation. Thus, the investment through a fund may be the safest way to invest in Ukraine.
Direct and indirect economic benefits
Besides, the fund’s non-resident investors would be spared extensive paperwork that must be followed every time when dealing in separate securities directly, resulting in significant reduction in administrative time required and associated cost.
If elected to the fund’s Supervisory Board, the investor may have additional authority to influence the fund's activities within the limits provided by the law.
In the case of a strategic decision to exit the country, the investor might be spared often long liquidating period of selling-out the position after position. If a closed-end or interval fund of yours is quoted at the local exchange, the prospective buyers will always see you firm “ask” for the whole portfolio. Thus, your chances of exit may increase. On the other hand, you would always see the bid prices for the portfolio.
In the case of the closed-end funds, the law allows for an early wind-up or, alternatively, extension of the fund’s pre-fixed life. There are no restrictions on new issues of the fund's shares after the initial offering, either. This provides additional flexibility.
Customized “sole-investor” funds
KEY CHARACTERISTICS OF INVESTMENT FUNDS IN UKRAINE
The law distinguishes among:
OPEN-END, INTERVAL and CLOSED-END FUNDS
A fund belongs to an interval type if it undertakes, at investors’ request, to redeem the securities issued by this fund during the term envisaged in the prospectus, but at least once a year.
A fund belongs to a closed-end type, if it does not undertake any obligations to redeem the securities issued by this fund until reorganization or liquidation .
DIVERSIFIED vs. NON-DIVERSIFIED
CORPORATE vs. UNIT FUNDS
By contrast, a unit fund is not a legal entity but a pool of assets co-owned by the investors exercising rights of joint partial ownership, which is managed by the management company. The management company is the founder of the fund and the issuer of the fund’s securities – investment certificates.
REDEMPTION RIGHTS AND TRANSFERABILITY
Securities of closed-end funds are not redeemable until winding-up of the fund’s operations, but are instead transferable in the secondary market.
Between the redemption periods, securities of interval funds may also be traded in the secondary market.
PROVISION FOR A SPECIFIC NUMBER OF INVESTORS IN THE
SEGREGATION OF ASSETS
REGULATION AND SUPERVISION
ASSET MANAGERS’ REQUIRED
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