Investment Funds Governance

The investment funds have an important role in the capital market, whereas capital is collected from the investors and invested in a variety of assets, the importance of investment fund governance is to ensure the protection of investors’ rights and enhance confidence in these funds.

What is the Investment Funds Governance?

We can clarify the investment funds Governance that it is rules, principles, and practices that aim to guide and manage investment funds rationally and transparently and to achieve the interests of all concerned parties, primarily investors, under the umbrella of the law and the regulatory authority.

Law no. 95 of 1992 and its executive regulation, and the Financial Regulatory Authority “FRA” decisions clarify all the rules regulating all types of investment funds Governance.

Article 141 of the executive regulation of Law No. 95 of 1992 and its amendments clarified the following definitions:

Fund General Assembly:

The Fund’s General Assembly consists of shareholders in the capital of the Fund.

Group of financial document holders:

The group consists of holders of financial documents issued by the Fund.

Net Asset Value:

The market value of the Fund’s assets deducted liabilities and all expenses due.

Qualified Investors:

Investors with financial solvency according to the regulations set by the Authority, and legal entities from financial institutions, pension funds, investment companies and funds, and other companies and institutions specialized in investing in securities.

Investment Manager:

The company that is responsible for managing the Fund’s assets and liabilities.

Portfolio Manager:

The person that is responsible for the Investment Manager for managing the Fund’s investments.

Associated Investment Funds:

Investment funds are managed by the Investment Manager or any of the persons associated with him.

Independent member of the Board of Directors of the Fund:

A natural person who is not a member of the Board of Directors or the Executive Management of the Fund and all service providers to the Fund and is not directly or indirectly related to any of them, and is not a spouse or second-degree relative of these persons.

Management Services Company:

A specialized company that undertakes the calculation of the net asset value of open-ended and closed-ended investment funds, the registration of the issuance and redemption of open-ended investment funds’ investment documents, as well as the preservation of financial documents of real estate funds’ assets, in addition to other activities stipulated in this article.

Also, article 162 of the same executive regulations stipulated that “The general assembly of the shareholders of the Fund shall consist of all shareholders therein, and in the absence of a provision in this article, the provisions of the Joint Stock Companies, Limited Partnerships and Limited Liability Companies Law issued by Law No. 159 of 1981 and the Law No. 95 of 1992 referred to and the decisions issued in implementation thereof shall apply to the ordinary and extraordinary general assembly of the Fund, in the absence of a specific provision in this article”.

Article 163 of the same executive regulations stipulated that” The Fund shall have a Board of Directors consisting of no less than three members and no more than eleven members, the majority of whom shall be independent members, and it is not required that they include executive members.

The Board of Directors shall supervise the Fund’s activities and shall be responsible for the following:

1. Appointing the Investment Manager, ensuring that he fulfills his obligations and responsibilities, and dismissing him, provided that the decision is ratified by the group of financial document holders in a manner that achieves the interest of financial document holders in accordance with the prospectus or information memorandum and the provisions of these regulations.
2. Appointing the management services company and ensuring that it fulfills its obligations and responsibilities.
3. Appointing the custodian.
4. Approving the prospectus for the Fund’s financial documents and any amendments thereto before they are approved by the Authority.
5. Approving the contract for promoting the subscription in the Fund’s financial documents.
6. Verifying the implementation of policies that ensure avoiding conflicts of interest between the related parties and the Fund.
7. Appointing the Fund’s auditors who are registered in the register prepared for this purpose by the Authority.
8. Follow up on the work of the internal auditor of the investment manager and meet with him at least four times a year to ensure his compliance with the provisions of the Capital Market Law, its executive regulations, and the decisions issued in implementation thereof”.

According to Article 174 of the same executive regulations, “Unless otherwise specifically provided for in this chapter, the investment of the Fund’s in securities shall be within the limits and in accordance with the following controls:

• The Fund’s management shall work to achieve the Fund’s investment objectives stated in the prospectus.
• The Fund’s management shall adhere to the maximum and minimum investment ratios and limits for the investment ratios permitted for each type of invested asset stated in the prospectus.
• Investment decisions shall take into account the principle of risk distribution and non-concentration.
• The percentage invested in purchasing securities of a single company shall not exceed (15%) of the Fund’s net assets and shall not exceed (20%) of the securities of that company.
• The percentage invested in purchasing investment documents in another fund shall not exceed (20%) of the net assets of the fund that made the investment and shall not exceed (5%) of the number of documents of the fund invested in.
• It is not permissible to carry out operations to borrow securities for the purpose of selling them, purchasing on margin, or acquiring through related groups in accordance with the provisions of Chapter Twelve of these regulations”.

The open-ended fund must maintain a percentage of its net assets in liquid form to meet redemption requests. The fund may invest this percentage in low-risk investment areas that are convertible into cash upon demand.

In case any of the investment limits stipulated in this chapter are exceeded, the investment manager must notify the Authority immediately and take the necessary measures to deliver the situation within a maximum of one week.

Within a maximum of three months from the date of commencement of the Fund’s operations, short-term monetary instruments may be held in excess of the percentages stipulated in this Article.

The Fund may invest a percentage not exceeding (15%) of its net investments in purchasing the portfolios of companies and entities licensed by the Authority to practice microfinance activity, and not exceeding (30%) of the financing portfolio of each company, association, or civil institution.

According to Article 175 of the executive regulations, “The Fund shall expire if its term expires and is not renewed, or if the purpose for which the Fund was established is achieved or if it faces circumstances that prevent it from carrying out its activity.

The Fund may not be liquidated or extended without obtaining prior approval from the Authority’s Board of Directors, provided that the approval of the group of policyholders for liquidation is obtained before the expiry of the Fund’s term, and the proceeds from the liquidation of the Fund’s assets shall be distributed to the financial documents holders, each in proportion to the percentage of the financial documents owned by him.

The provisions for the liquidation of joint-stock companies stipulated in the Joint-Stock Companies, Limited Partnerships and Limited Liability Companies Law issued by Law No. 159 of 1981 and its executive regulations shall apply, insofar as there is no provision in the subscription prospectus or information memorandum, as the case may be”.