Banking and finance

The new Asset Management Regime came into force on May 28th, 2023, with a period of 180 days for SGOIC (Sociedades de Gestão de Organismos de Investimento Colectivo - Collective Investment Management Companies) and OIC (Organismos de Investimento Colectivo - Collective Investment Undertakings) to adapt to the criteria of the new legal regime. This adaptation period is still running and will end on November 24, 2023. Published by Decree-Law no. 27/2023, of April 28th, this new legal regime adopts a common regulatory framework for Collective Investment Undertakings and regulates in a unitary manner the matters that were dispersed throughout the General Regime of Collective Investment Undertakings (RGOIC), and the Legal Regime of Venture Capital, Social Entrepreneurship and Specialized Investment (RJCRESIE). The new legal regime also responds to the need to promote the alignment of national law with European Union law, resulting from the changes that the latter has been undergoing. When approving the diploma under analysis, the Government announced the objective of pursuing a more harmonized, coherent, and uniform regulatory policy, which promotes the effectiveness of supervision and the competitiveness of the sector, adopting solutions more aligned with European Union law, considering that this is a particularly relevant element, as market operators increasingly compete in the integrated context of the European Union's internal market. The pursuit of the principles of economy and legislative simplification was also part of the objectives of the national legislator, therefore, as the activity of collective management is subject to principles and rules that tend to be common, regardless of the nature of the organizations, it considered as advantageous to unify and systematize these common references, ensuring greater coherence and regulatory harmonization. This legislative initiative also aims at promoting a more favourable business environment, capable of providing incentives for investment, company capitalization and sectoral consolidation. When addressing some of the essential aspects of the Asset Management Legal Regime, it is worth highlighting:  

OIC (Collective Investment Undertakings)

OIC are institutions whose purpose is to collectively invest capital obtained from investors in accordance with a previously established investment policy. The OIC are defined by reference to the collection of capital from investors for application in accordance with an investment policy, and it is foreseen, in accordance with Directive 2009/65/EC, that UCITS (Undertakings for Collective Investment in Transferable Securities) are still subject to the principle of risk diversification.  

Types of OIC under the new legal regime

The new Asset Management Regime foresees the existence and regulates two types of OIC:

• The OICVM (Organismos de Investimento Coletivo em Valores Mobiliários/ UCITS - Undertakings for Collective Investment in Transferable Securities), and
• The OIA (Organismos de Investimento Alternativo/ AIU - Alternative Investment Undertakings)

The OICVM open undertakings:

1. The sole purpose of collectively invest the capital obtained from the public in securities or other liquid financial assets provided for in the Asset Management Legal Regime and which comply with the limits set out therein; and
2. Whose participation units are, at the request of their holders, redeemed or reacquired, directly or indirectly, at the expense of the undertaking. These requests may be refused whenever the participation units are traded on a regulated market or in multilateral trading systems and their price does not deviate significantly from its net asset value.

OIA correspond to collective investment undertakings not covered by the previous definition and whose purpose may consist of:

1. Investment in real estate assets, the real estate OIA.
2. Investment in venture capital, the venture capital OIA.
3. Investment in credits, the credits OIA credits; and
4. Investment in securities or other financial or non-financial assets, including assets allowed for the types of OIA mentioned in the previous paragraphs.

In other words, this new legal regime reduces the types of OIA admitted in the laws it revoked, reducing them to three essential types – real estate, risk capital and credits OIA– and a residual category. It is also worth noting that the Asset Management Legal Regime determines that real estate assets are considered, for the purposes of the investment activities provided for in paragraph a. above, in addition to real estate, participation units in real estate OIA and shareholdings in real estate companies.  

The nature of the OIC

OIC are autonomous assets and can take the contractual form, an investment fund, or a corporate form - a collective investment company. OIC in corporate form can be self-managed or hetero-managed if they appoint a third entity to ensure their management. These undertakings can be open or closed, depending on whether the number of parts - participation units or shares - in circulation is variable or fixed. Open OIC participation units can be subscribed and redeemed at the request of participants, as provided for in the incorporation documents. The holder status results from the acquisition of securities representing a fraction of the OIC's under contractual or corporate form assets in. The units correspond to securities issued by OICs under contractual form, while those under corporate form issue shares because they adopt the form of public limited company. Regardless of the form of the OIC, the securities representing its parts are necessarily book-entry and have no par value. The initial acquisition is made by means of subscription, which involves payment of the respective subscription value. In the open OIC the subscription value is fully paid up and in other undertakings it can be fully or partially paid up, depending on what is established in the incorporation documents. OIC may have a fixed or indefinite duration, depending on what is established in the respective incorporation documents. In closed OIA with an indefinite duration, the respective incorporation documents shall provide for the negotiation of their units within three years of the incorporation date.  

The Management Company

The activity of OIC is supported by the activities of a set of entities with different but, however, complementary functions. Among these entities, the management company, the depositary, and the marketing entities stand out. All these entities are bound by the duty to act in the exclusive interest of the unit holders, that are the holders of collective assets. The new legal regime simplifies the list of entities that can carry out collective asset management activities. The legal regime that was previously in force provided for four types of management companies: collective investment undertaking management companies (SGOIC), venture capital companies (SCR), social entrepreneurship companies and venture capital funds management companies, and included additionally the role of venture capital investors, as well as the possibility of regional development societies carrying out the activity. Under the new legal regime, the types of eligible management companies are only two: collective investment undertakings management companies - SGOIC and venture capital companies - SCR. This classification is based on the difference in the scope of activity of each type of management company. Consequently:

• SGOIC can carry out OICVM and OIA management activities, but cannot, however, exclusively manage risk capital OIA.
• SCR can only manage OIA and must necessarily manage at least one risk capital OIA and cannot mostly manage real estate OIA.

 

Start of activity of Management Companies

Under the terms of the legal regime in force, the start of activity of any management company depends on authorization from the Securities Market Commission (CMVM). The new decree-law establishes two regimes for accessing the activity depending on the purpose and size of the management company. The first one, a simplified regime for accessing and exercising OIA management activities, for small size management companies. According to the Asset Management Legal Regime, OIA management companies are divided into large and small management companies, depending on whether or not the assets under management exceed the following amounts:

1. (euro) 100,000,000 and include assets acquired using leverage.
2. (euro) 500,000,000 and do not include assets acquired using leverage and in relation to which there are no reimbursement rights that can be exercised during a period of five years from the date of the initial investment.

 

The small size OIA Management Companies

Small size management companies are subject to a simplified authorization procedure, by reference to the regime applicable to OICVM and large size management companies. The CMVM has a decision period of 30 days, in which it carries out an ex-ante analysis of the suitability of the members of the management body. The minimum initial capital requirement for a small size management company is (euro) 75,000, and the company is required to establish an additional amount of own funds of 0.02% of the amount by which the overall net value of the portfolios under management exceeds (euro) 250 000 000. Its organizational requirements are subject to subsequent analysis by the CMVM, in accordance with general principles and proportionality criteria. Finally, the appointment of a depositary is not required for OIAs managed by this type of management companies, when dealing with OIAs aimed exclusively at professional investors.  

Management Companies of OICVM and large size OIA

The regime for starting activity of OICVM and large size OIA management companies is also adjusted, notably by reducing the deadline for the CMVM's authorization decision.   The new legal regime establishes a decision period of 90 days, extendable for 30 days, whereas the previous regime provided for decision periods that could extend up to 6 months. The basic requirements of authorization requests were also adjusted in line with the provisions of European Union law. The basic requirements for OICVM and large size OIA management companies essentially correspond to the requirements set out in the previous legal regime. This type of management companies adopt the form of a public limited company, have central and effective administration in Portugal, a minimum initial capital of at least (euro) 125.000 or, if they carry out the activity of registering and depositing financial instruments, (euro) 150.000, the members of the governing bodies and qualified unit holders meet the suitability requirements, and these companies have a top management team with at least two people. The authorization for the management company to starting its activity defines the scope of the activity that it can carry out, in accordance with the types set out in the legal regime. The management company may, upon authorization, be authorized to manage OICVM, OIA or both. Additionally, depending on the type of OIC it is authorized to manage, it may also be authorized to carry out additional activities regulated by Directive 2014/65/EU. OICVM and large size OIA management companies may carry out cross-border activity in the European Union under the right of establishment and freedom to provide services, by complying with the notification procedure provided for in the new legal regime, as foreseen in Directive 2009/65/EC and Directive 2011/61/EU. For this purpose, the management company shall communicate to CMVM, accompanied by the required information, its intention to establish a branch in another Member State or act under the freedom to provide services. Said information shall be forwarded by CMVM to the supervisory authorities of the hosting Member States, and the CMVM may refuse to forward the information in certain situations, duly substantiated. Likewise, a European Union management company may also carry out activities in Portugal under the right of establishment and freedom to provide services under identical terms to a national management company, upon compliance with the aforementioned notification procedure.   Prudential supervision of the management company is always ensured by the authority of the home Member State. The new legal regime also establishes the requirements for a management company from a third country to carry out activities in Portugal. The management company plays a key role in the development of the activity of the OIC and is therefore subject to a demanding framework of fiduciary duties to act in the exclusive interest of the unit holders. The management company manages the investment and risk of the OIC, and is also responsible for its marketing and administration, providing a set of administrative services. The OIA management company can also provide a range of additional services related, namely, to facilities management or property administration, as well as specialized advice.  

Duties of the management company

The management company acts in the exclusive interest of the unit holders, carrying out its functions in accordance with reinforced standards of conduct, namely honesty, equity, care, diligence and competence, and is also subject to the duty of secrecy. As part of its general duties, the OICVM management company integrates sustainability risks into the scope of its activities. The management company must give precedence to the interests of unit holders over any other interests, whether its own or those of related entities, and must also ensure equitable treatment of unit holders. The OIC management activity is remunerated by means of a management fee. The calculation formula of the management fee is defined advance, in the OIC's incorporation documents, and may include a variable component resulting from the performance of the OIC. In addition to the management fee, other costs and charges attributable to the OIC are subject to adequacy criteria taking into account the principle of sound and prudent management. The management company cannot charge or impute to the OIC or the unit holders any costs that are not due and are not provided for in the incorporation documents. The management company may subcontract its functions but for that purpose must inform the CMVM in advance. Subcontracting cannot compromise the effectiveness of the management company's supervision, nor its ultimate responsibility for managing the OIC. The management relationship is, by nature, a long-term relation that remains, as a rule, for the duration of the OIC. In certain situations, the management company may be replaced in its functions, provided that the incorporation documents provide for this possibility. Said provision is an essential requirement of the replacement, as this circumstance represents a significant change in the assumptions underlying the investment in that specific OIC. The replacement of the management company of an open OIC depends on authorization from the CMVM and, in the case of other OICs, is subject to subsequent communication to the same supervisory entity.  

Information duties

The incorporation documents are, depending on the type and nature of the OIC, the prospectus, the management regulations, the document with fundamental information intended for investors, the information for OIA investors addressed exclusively to professional investors and, in the case of a collective investment companies, the articles of association. The preparation of a prospectus is required for open OIC, whether OICVM or OIA, and it shall include the management regulations and, in the case of OIC under corporate form, the articles of association. OICs are also required to prepare and disclose accounting documents. The OICVM shall prepare and disclose annual and half-yearly reports in accordance with the model set out in an annex to the new Asset Management Legal Regime, respectively, within four and two months from the end of the reference period. The OIA shall only prepare and disclose an annual report within five months from the end of the reference period. The minimum content of OIA reports and accounts follows directly from European Union regulations. The information regarding the OIC that must be published under the regime in force, is disclosed through the CMVM information system. Without prejudice to other disclosure requirements provided for in the new legal regime, the prospectus, the management regulations, the fundamental information intended for investors, the information for OIA investors aimed exclusively at professional investors and the latest annual and half-yearly reports and accounts and mandatorily subject to disclosure. In addition to the duties of informing the public and unit holders, the OICs and their respective management companies are subject to information duties towards CMVM, for the purposes of supervising and monitoring compliance with the rules that govern their activity. In particular, the management company must communicate to CMVM any relevant facts relating to the collective investment undertaking that affect its functioning or significantly affect its assets. Whenever it deems necessary to protect the interests of investors, CMVM may determine that these facts are to be publicly disclosed. These are some of the relevant aspects of the Asset Management Legal Regime that recently came into force. We call your attention to the fact, as we had the opportunity to highlight previously, that the deadline for adapting to the new regulations runs until November 24th, 2023. Our Firm's Banking and Finance Department is at your disposal to support you in this adaptation process and to clarify any doubts it may raise.   Contributors: Banking and finance department of Raposo Bernardo | please contact [email protected]