Royal Decree of 10 July 2016: a new start for alternative investment funds investing in non-listed companies and growth businesses?

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On 4 August 2016, the Royal Decree on alternative investment funds investing in non-listed companies and growth businesses was published in the Belgian State Gazette. Its main objective is a new start for investment companies with fixed capital investing in non-listed companies and growth businesses (Public Privaks) (“Publieke Privak”/“Pricaf Publique”).

The objective

The Royal Decree on alternative investment funds investing in non-listed companies and growth businesses (the Royal Decree) repeals the Royal Decree of 18 April 1997 on investment funds investing in non-listed companies and in growth businesses and attempts to adjust the legal and regulatory framework in order to meet the ongoing developments from the past years in the financial markets and regulations. The Royal Decree has been adopted based on the Act of 19 April 2014 on alternative investment funds and their managers (implementing Directive 2011/61/EU of 8 June 2011 on alternative investment fund managers).

The Royal Decree has two main objectives.

First, through the renewed legal framework, it aims at providing easier and new means of financing for alternative investment funds investing in non-listed companies and growth businesses. Despite their high potential, these investment funds previously had difficulties in gaining access to finance, slowing down the further development of their businesses.

Secondly, the provisions imposed intend to contribute to maintaining and furthering the creation of employment. Indeed, the Royal Decree ultimately aims at improving the financing of an important sector of the ‘real economy’, while also still providing investors with the protection and information needed through the applicable legal framework.

The Royal Decree entered into force on 14 August 2016.

Key features

  • Strict legal form, either a public limited liability company (“Société anonyme”/”Naamloze vennootschap”) or a partnership limited by shares (“Commanditaire vennootschap op aandelen”/”Société en commandite par actions”) (Article 1);
  • Mutual common funds (“Gemeenschappelijk beleggingsfonds”/”Fonds commun de placement”) as a legal form is no longer allowed (Article 1);
  • Updates on compensation rules. Distributing dividends when the maximum debt ratio has been reached will be prohibited. The objective is to avoid conflicts of interest and to prevent managers from benefitting from an unjustified portfolio rotation (Article 10);
  • Updates on the prevention of conflicts of interest. Operations of investment funds will be included in the annual report. This aims at ensuring the provision of information to investors on the operations and activities that pose a high risk of conflicts of interest (Article 11);
  • Mandatory application of international financial reporting standards (IFRS) (Article 14);
  • Rules on the investment policy and eligible assets have become simplified and modernized. Just as in the repealed Royal Decree of 18 April 1997, the investment policy must be primarily focused on financial instruments issued by non-listed companies or by listed companies that are not crossing set thresholds. The investment fund now has an increased discretion in the way investments are structured. For instance, as mentioned in the Commentaries on the Royal Decree, equity, mezzanine finance, debt obligations or shareholder loans can be used. This simplifies the structuring exercise, without harming the investment policy’s limitations. The requirement to invest at least 50% of the assets in shares is no longer applicable. Furthermore, the Private Privak has increased the board of directors’ discretion on the distribution of its portfolio in listed and non-listed companies. A minimum of 25% of the assets must be invested in non-listed companies (Articles 17 to 25);
  • Updates on the risk diversification rules. The applied risk diversification policy has to be included in the company’s articles of association. The risk exposure of investments against a single counterparty is capped at 20% of the statutory net assets but there is no cap provided for a maximum nominal amount (Articles 19 and 20); and
  • The Private Privak will have to distribute at least 80% of the profits gained (Article 35).

Read the official publication (Dutch/French)

Any questions? Don’t hesitate to contact Olivier Hermand or Maya Van Belleghem.