Investment funds in Russia

About our partner

Our partner, Andrey Lihachev, is a professional lawyer in the field of asset management and an active partner and head of a Family Office in Russia, under the management of an international company.

He also has a license of the Federal Financial Market Service for the management of investment funds, mutual funds and private pension funds. He runs private investment funds as a Family Office.

Having professional experience working with banking institutions and specialized management companies of the Central Bank of Russia, he provides full management support for creating structures for PIFs.

Our partner´s team represents several important Russian banks, investment groups and fund managers as well as many smaller private family offices.

Our partner offers foreign investors full legal support including:

·        Establishing and servicing Bank accounts for foreign companies and individuals

·        Establishing residency and tax residency for foreigners

·        Supporting investment into Russian assets including distressed assets, bonds and stocks and acquisition of large medium and small businesses

·        Joint venture negotiation

·        Establishing PIF investment funds

What is PIF or Mutual Investment Fund?

A mutual investment fund (PIF) is a pool of property of persons and legal entities, managed by a specialized management company. All property that makes up a PIF is in a shared ownership of the participants of this fund. The PIF itself is not a legal entity.

The property of the Mutual Investment Fund is managed by a management company acting under the license of the Bank of Russia and the registered rules of trust management of the mutual Fund.

The share in the ownership of the Mutual Fund is certified by a security, which is issued by the management company.

Investment funds in Russia

18 years of experience (1993-2011)

The development of the Russian investment funds started in Tokyo in 1993, where the representatives of the G8 agreed on the allocation of funds for the development of venture capital projects under the auspices of the EBRD (European Bank for Reconstruction and Development).

The amount of 500 million dollars was supposed to be shared between venture capital funds, under the EBRD´s control and also under the control of other funds organized in Russia on a regional basis.

In the year 2001 the Federal law on investment funds №156-FЗ came into force, and later, in 2003-2005, the closed-end mutual funds appeared in the picture, including venture capital funds and private equity funds.

Nowadays in Russia there are 60 venture capital funds and 35 private equity funds.

The total investment adds up to 100 billion rubles.

The investment fund market in Russia supports different innovation projects that are currently being developed.

Moreover, in Russia there are also foreign venture capital funds, thanks to which it is possible to take advantage of foreign tax and corporate legislation.

One of the most important closed-end mutual funds is the Russian private equity fund under the aegis of the VEB, which is a government institution and the main development corporation in the country.

Main characteristics of an investment fund in Russia

A flexible and comfortable investment

·   The Private Fund allows the possibility of using financial instruments in countries that are registered to the automatic ex-change of financial information (OECD Automatic Exchange Information Standard).

·      Family Office or professional portfolio managers can safely manage the assets of family members, based on a strong and firm structure.

·      The possibility of combining the assets of family members or friends, in order to implement a combined investment strategy.

·        Private funds provide high confidentiality levels as the beneficial owner´s information is not disclosed.

Transparency

The name of the fund is chosen by the client, the client is completely free to choose assets, distribution, transactions, etc. (subject to the availability of an appropriate legal structure).

·        Advanced reports. Individual reporting is possible through the fund administrator.

·        Net asset value calculations allow monitoring and performance control.

Effectiveness

·        Thanks to the tax and financial instruments it is possible to obtain additional profits and to defer tax payments.

·        Ability to attract credit using securities like guarantee.

·   Large pools of assets can provide access to institutional products and to investments that are not available to individual investors.

·        Private Funds allow you to analyze the investment portfolio on a consolidated and steady basis.

Advantages of an investment fund in Russia

Safety

▶  Prohibition on foreclosure on assets of Mutual funds on debts of unit holders or operating companies.

▶  Protection from bankruptcy of the Mutual Fund.

Involvement of assets

▶  Assets security

▶  Reliable legal mechanism

▶  Additional sales channels

Tax optimization

▶  Tax-free reinvestment

▶     The absence of double taxation

Additional benefits

▶  The ordering of ownership of assets between owners

▶  Repatriation of capital, departure from CFC

▶  Raising the status of the company

Differences between a PIF and a Trust

A Trust in General (Anglo-Saxon) law is a system of legal relations, in which property, originally owned by the founder, is transferred to the trustee, and income from it is received by beneficiaries.

In Russia (as a system of continental law, unlike Anglo-Saxon), Mutual Investment Funds (UIFs or PIF in Russian) operate instead of Trusts, in European countries it is SIF.

Throughout the European Union, the UCITS (Undertakings for the Collective Investment in Transferable Securities) is used to provide a high level of protection in accordance with the European Directive 2009/65 / EC of 13.07.2009. This directive describes common rules for regulating open funds that invest in securities (stocks and bonds). The directive regulates the organization, management and supervision of such structures as funds, and also defines the rules regarding diversification, liquidity and the amount of borrowed funds.

In Russia, Mutual Investment Funds (PIF) are regulated by the Federal Law “On Investment Funds.” No. 156-ФЗ.

The shareholder - the creator of the PIF is the beneficiary, just like in a Trust.

The Trustee is a management company that has a banking license.

Like a Trust, PIF is not a legal entity, but is considered as property in the form of an investment under the management of a specialized management company licensed by the Central Bank of Russia.

Instead of an agreement with a Trustee, a PIF adopts Trust Management Rules (PDU in Russian), which are registered with the Central Bank of Russia.

The specialized management company is an independent legal entity with certified professional managers and has its own assets of at least 20 million USD. In addition, the specialized management company is personally financially responsible to the Fund Shareholders.

The main difference from the Trust is that the PIF maintain mandatory reports to the Central Bank of Russia, which is the control body.

There are basically no other differences, a PIF is essentially the same thing as a Trust.

How can foreigners establish or invest in a PIF 

A mutual investment fund (PIF) is a pool of property of persons and legal entities, managed by a specialized management company. All property that makes up a PIF is in a shared ownership of the participants of this fund. The PIF itself is not a legal entity.

The property of the specialized management company is separate from the property of the PIF and is accounted for on a separate balance sheet. The relations between the participants of the investment fund and the management company are regulated by the legislation on investment funds and the rules of trust management of a particular fund (registered by the Bank of Russia) which have the status of a trust agreement.

A combined PIF may be of a closed type, its units are intended only for qualified investors.

Just like for residents, a shareholder can be a person who has been qualified as an investor. For a foreign citizen, as well as for a Russian citizen, it is enough to show a bank statement that there is at least 100 thousand USD on the account.

It is not necessary to go through a qualification procedure for a foreign company.

Opportunities for fund transfers are easier than opening a bank account with the Bank.

How do I know my money is safe?

·    A share in the right of ownership of a PIF is certified by a security, the records of which are maintained by a specialized institution of the Bank of Russia. There is a statutory ban on the collection of debts of the Shareholder from the property of a PIF.

·        There is no information on the holders of investment shares in public registers.

·        PIF reports of a certain category are not disclosed.

·        For additional control, the PIF has an investment committee, where shareholders can appoint their attorneys (the mechanism is similar to the status of the protector in a trust).

·       All assets are controlled and supervised by the Central Bank of Russia; it is not possible to alienate property from mutual funds without the consent of the shareholder (beneficiary).

The disposal of the property takes place on behalf of the shareholder (he puts the signatures on all administrative documents), the order of the shareholder can also be additionally fixed only by a notary, and not by the trustee, exactly like in a Trust.

What are the benefits of investing in Russia for foreigners?

1. A PIF can invest in almost anything. There are no strict restrictions:

·      Bonds, stocks, financial instruments, other funds, other SIFs, funds of funds, structured products, ETFs, derivatives (guarantees, options, futures, etc.).

·     The PIF can implement any hedging strategies (CTA, long / short, Global macro, systematic, event-driven, market development, side risk protection, futures management, Technology, etc.).

·        Real estate (commercial, private, directly or indirectly).

·        Private investments (stocks, loans, funds, etc.).

·        Long-term (debts, securitization, venture funds investing in undervalued companies) currency, precious metals.

·        “Green” investments or projects, micro financing.

·        Works of art, cars, jewelry and wine collections. 

2. It is not possible to collect property of PIFs.

·        The legal basis is the norm of the Civil Code of the Russian Federation. This norm states that it is impossible to foreclose property that is held in a trust, for the debts of the trustor (owner of investment shares) or the manager himself (specialized Management Company).  

3. Shareholder information is confidential and not public.

·        Depending on the residence of the shareholder, a full exemption from taxation or preferential tax treatment is possible. No taxation on income from the PIF. 

4. Beneficiaries are closer to the money. Unlike ordinary legal entities, the list of shareholders is not public information, that is, intermediate structures don´t need to conceal or mediate their control over assets, which entails additional tax and other costs;

5.  Assets for government officials. Trust management status allows holding assets, when the possession is not directly allowed or “not recommended” for government officials.

6. Doing business with a PIF or within a PIF is inevitably associated with the implementation of a number of standards and requirements supervised by the Central Bank of the Russian Federation. For counterparties, this is a sign of lower risks and greater reliability.