The Investment Funds

Article 142 of the Executive Regulation of the Capital Market Law No. 95 of 1992 “The Executive Regulation” stated that the investment fund shall take the form of a Joint Stock company, established in accordance with the procedures and provisions applicable to the establishment of companies operating in the securities sector. The issued and paid-up capital of the fund company shall not be less than 2% of the size of the fund, with a maximum limit of 5,000,000 EGP (Five Million Egyptian pounds) or its equivalent in foreign currencies. The fund company may increase its issued capital beyond the aforementioned maximum limit.

The founders of the fund company shall contribute the entire capital in cash, in proportion to their shareholding, and in return, fund certificates will be issued. Banks and insurance companies are permitted to directly managing in the operation of open-ended investment funds, subject to the conditions and regulations set forth in the law.

After the approval of the Central Bank of Egypt “CBE”, banks and companies managing the non-banking financial activities, as specified by a decision of the Board of Directors of Financial Regulatory Authority “FRA”, may directly manage the activity of investment funds, either independently or in partnership with others, upon obtaining a license from FRA. The Board of Directors of FRA shall issue the rules, regulations, and procedures governing the licensing, operation, and supervision of investment fund activities under the oversight of FRA.

Joint-stock companies whose activities are related to any of the fields of investment funds may convert to operate an investment fund activity, after amending their structure and Articles of Incorporation “AoI” to comply with the provisions applicable to the type of investment fund they intend to operate. upon obtaining a license to operate the activity in accordance with the provisions of this chapter, all subject to the conditions, regulations, and procedures issued by the Board of Directors of FRA.

The law clarifies some important definitions, according to Article 141 of the same law, and types of investment funds within the Egyptian economy, as follows:

Investment Fund:

A mutual collective investment structured as a joint-stock company, aims to provide investors with the opportunity to collectively invest in the fields outlined in these regulations. The fund is managed by an investment manager for a fees

Investment document:

A security that represents the holder’s proportional share in the net value of the fund’s assets. holders of investment certificates share in the profits and losses resulting from the fund’s activities, in proportion to the number of certificates they own.

Types of Investment Funds

1- Open-End Investment Fund:

This is an investment fund whose size increases with the issuance of new investment certificates and decreases with the redemption of existing certificates. The relationship between the fund’s capital and its size is governed by the provisions of Article (142) of this regulation. Investment certificates can be purchased and redeemed without the need for listing on the Egyptian Stock Exchange “EGX”, except for index funds.

2- Closed-End Investment Fund:

This is an investment fund where its certificates are offered through a private offering limited to qualified investors. Redemption of the funds certificates is only possible at the end of the fund’s term. However, such redemption may occur under conditions approved by FRA. The nominal value of the investment certificates issued in one or several offerings shall adhere to the ratio specified in article No.142 of these regulations. These certificates may also be offered through a public offering, provided that they are listed and traded on EGX.

3- Private Equity Fund:

This is a closed-end direct investment fund that invests its capital in the purchase of listed and unlisted securities on EGX. It also operates in venture capital activities. The fund’s certificates are offered through a private offering, and these certificates may be listed on EGX.

4- Exchange Traded Fund “ETF”:

This is an open-end investment fund that issues certificates in exchange for investing its assets in a portfolio that follow the securities of a specific price index in the stock exchanges. The fund’s certificates are listed and traded on the stock exchange.

5- Money Market Fund:

This is an investment fund that issues certificates in exchange for investing all of its assets in short-term investments, such as debt instruments issued by the government, banks, and companies, repurchase agreements, treasury bills, bank savings certificates, and certificates of other money market funds.

6- Debt Instruments Fund:

This is an investment fund that issues certificates in exchange for primarily investing its assets in medium- and long-term debt instruments, including treasury bonds, corporate bonds, sukuk, securitized bonds, and other similar financial instruments. The fund is required to maintain a portion of its assets in short-term investment assets.

7- Real Estate Investment Fund:

This is a closed-end investment fund that issues certificates in exchange for the fund’s investments in real estate assets, including land, developed properties, and other assets that ensure a certain level of liquidity.

8- Charitable Investment Fund:

This is an investment fund whose profits and returns from its investments are exclusively distributed for social or charitable purposes, through registered charitable associations, institutions, government bodies, or their affiliates engaged in charitable activities, in accordance with the terms set forth in the prospectus or information memorandum, as applicable.

9- Sustainable Development Investment Fund:

This is an investment fund that aims to invest in economic activities related to green projects or projects that consider environmental and social factors. The fund’s certificates may be offered through a public or private placement.

10- Hedge Fund:

This is a type of investment fund that invests in equities, debt instruments, financial instruments, or a combination thereof. The fund aims to invest in stocks, debt instruments, and other securities and financial instruments with high trading volumes. It may operate in trading through specialized trading mechanisms on the stock exchanges, in accordance with the investment policy outlined in the prospectus or information memorandum. The fund’s certificates may be offered through a public or private placement.

Recent Developments in the Investment Fund Market in Egypt

The investment fund market in Egypt has witnessed significant developments in recent years, as the Egyptian government has introduced various incentives to encourage investment in investment funds, which has contributed to the market’s growth.

Key Developments in Investment Funds in Egypt:

• Real Estate Investment Trusts (REITs): This type of fund has seen remarkable growth in Egypt, offering an opportunity to invest in the real estate sector without the need to directly purchase properties.
• Sharia-Compliant Investment Funds: These funds are experiencing a growing interest among Muslim investors, as their investments comply with Islamic law (Sharia).
• Gold Investment Funds: With the rise in gold prices, gold investment funds have gained popularity as a tool for hedging against inflation.
• Emerging Market Investment Funds: These funds provide investors with an opportunity to invest in emerging markets with high growth potential.
• Financial Technology (FinTech): The rise of financial technology has led to the emergence of new investment platforms that allow investors to access a wide range of investment funds with ease and flexibility.