Funds (collective investment undertakings)

Collective investment undertakings are simply referred to as funds. They are entities through which collective investment is carried out.

We can categorize funds according to various criteria:
• according to the place of their establishment
• according to their legal form
• according to their investment policy
• according to the rights of investors (shareholders/unit holders)
• according to the allowed category of investors

Funds are categorized according to their place of establishment into:
• domestic and
• foreign.

Domestic funds are established in the territory of the Slovak Republic in accordance with the Act on Collective Investment. They are supervised by Národná banka Slovenska. Domestic funds must have a depositary. The depositary ensures the depositary safekeeping of the fund’s assets and checks whether the management company handles the fund’s assets in accordance with the Act on Collective Investment.

Foreign funds:
• are foreign collective investment undertakings,
• which may be legal entities or have no legal personality,
• are established and managed by a (foreign) management company or are self-governing (self-managed),
• are established and managed according to the law of the country in which the fund was established or in which it has its registered office.

We categorize domestic funds according to their legal form as follows:
a. mutual funds,
b. investment funds with variable share capital established in the form of a joint-stock company with variable share capital based in the territory of the Slovak Republic,
c. other domestic entities with legal personality, established in the form of a company or cooperative with registered office in the territory of the Slovak Republic, which collect funds (capital) from several investors with the aim of investing them in accordance with a defined investment policy for the benefit of these investors (these entities are often referred to as collective investment undertakings according to § 4 paragraph 2 letter b) of the Act on Collective Investment).

Mutual fund:

• is one of many collective investment undertakings;
• is created by a management company;
• is not a legal entity;
• represents the common property of unit holders (shareholders);
• the property in it is managed by a management company, which invests this common property for the benefit of unit holders (shareholders) in accordance with the statute of the mutual fund;
• the equity rights of unit holders (shareholders) are represented by unit certificates (share certificates);
• may consist of two or more sub-funds (hereinafter referred to as the “umbrella mutual fund“).

The sub-fund means:
• a part of the umbrella mutual fund’s assets and liabilities that is separated pursuant to accounting rules or
• a part of the assets and liabilities of an investment fund with variable capital that is separated pursuant to accounting rules.

Each sub-fund must be distinguished from other sub-funds of the same umbrella fund by one or more features determined by the statute of the umbrella mutual fund or by the articles of association of the investment fund with variable capital.

We distinguish standard and alternative investment funds from the point of view of their investment policy.

The standard fund:
• is a mutual fund or investment fund with variable share capital,
• is a fund that meets the conditions of the UCITS Directive for investing in transferable securities and for spreading risk,
• is established based on the authorization of Národná banka Slovenska in the Slovak Republic,
• can be offered to retail investors through a public or a private offer.

The special fund:
• is a mutual fund or investment fund with variable share capital,
• does not meet the conditions of the UCITS Directive for investing in transferable securities and for spreading risk,
• is regulated through EU legal acts known under the abbreviation AIFMD,
• whereas a public special fund is created based on the authorization of Národná banka Slovenska in the Slovak Republic,
• whereas a public special fund can be offered to retail investors through a public or a private offer,
• for the establishment of a special fund of qualified investors, there is required an entry in the register of supervised entities of Národná banka Slovenska or an authorization,
• a special fund of qualified investors can only be offered to professional or qualified investors.

An entity according to § 4 par. 2 letters b) of the Act on Collective Investment:
• is established in the form of a company or a cooperative with its registered office in the territory of the Slovak Republic, which collects funds (capital) from several investors with the aim of investing them in accordance with a defined investment policy for the benefit of these investors,
• does not meet the conditions of the UCITS Directive for investing in transferable securities and for spreading risk,
• is regulated through EU legal acts known under the abbreviation AIFMD,
• if it meets the exception according to § 31a par. 1 of the Act on Collective Investment, an authorization is not required,
• can only be offered to professional or qualified investors in accordance with § 31d of the Act on Collective Investment, exclusively in the form of a private offer.

Yes, foreign funds can also be offered in the Slovak Republic. Commencement of an offer in the Slovak Republic is possible either based on a notification or on the basis of an authorization of the Národná banka Slovenska. The regime of notification or authorization depends on:
• the category of the involved foreign fund,
• the range of investors to whom it is offered,
• the type of offer – whether it is offered through a public or a private offer,
• the fact whether it is offered by a management company, a foreign European or a non-European management company.

Note: The table contains references to the provisions of the Act on Collective Investment.

European standard funds are:
• funds that meet the conditions of the UCITS Directive for investing in transferable securities and for spreading risk, and at the same time are
• established based on an authorization in another EU member state,
• in the territory of Slovakia, they can be offered in the form of a public offer on the basis of a notification according to § 142 et seq. of the Act on Collective Investment.

Foreign alternative investment funds are:
• funds that do not meet the conditions of the UCITS Directive,
• are regulated through EU legal acts known under the abbreviation AIFMD,
• established usually on the basis of an authorization in another EU member state (European foreign AIF) or in another state (non-European foreign AIF),
• in the territory of Slovakia, they can be offered to retail investors only on the basis of an authorization of Národná banka Slovenska according to § 148 et seq. of the Act on Collective Investment.

Based on special regulations of the European Union, it is also possible to establish other types of standard or alternative investment funds, the common feature of which is a simplified process of their cross-border distribution in the EU:

The money market funds (MMF):
• invest in short-term assets (assets with a residual maturity not exceeding 2 years),
• their separate or cumulative objectives are to offer returns in line with money market rates or to preserve the value of the investment,
• can be offered to retail as well as professional investors.

The European Venture Capital Funds (EuVECA) as well as the European Social Entrepreneurship Funds (EuSEF):
• are established in an EU member state,
• intend to invest their assets mainly in the so-called qualified investments,
• are offered exclusively to investors who are considered professional clients or qualified investors who commit to invest at least EUR 100,000 and state in writing that they are aware of the risks associated with the investment.

The European Long-Term Investment Funds (ELTIF):
• are established in an EU member state,
• intend to invest their assets mainly in the so-called eligible investment assets,
• can be offered to retail as well as professional investors.

Domestic and foreign funds can be categorized from the point of view of the rights of investors into open and closed funds.

The open fund:
• its unit holder (shareholder) has the right to have unit certificates (shares) paid out of the fund´s assets at his/her request,
• a domestic open fund can be established for a definite or indefinite period.

The closed fund:
• its unit holder (shareholder) does not have the right to have unit certificates (shares) paid out of the fund´s assets at his/her request,
• a domestic closed fund can be established only for a definite period which cannot exceed ten years.

Some funds can only be offered to a limited circle of experienced investors, such as professional investors or qualified investors. On the contrary, some funds can be offered to a wide range of investors, who are called retail investors.

The following types of funds can be offered to retail investors:
• domestic or European standard funds,
• money market funds, which may have the form of a standard or an alternative investment fund,
• public special funds (special fund of securities, special fund of alternative investments and special real estate fund)
• European long-term investment funds (ELTIF).

Some funds can only be offered to a limited circle of experienced investors, such as professional investors or qualified investors. Usually, all types of funds can be offered to professional investors.

Qualified investors can be offered all the funds that can be offered to retail investors, as well as following types of funds, after meeting various strict conditions:
• special funds of qualified investors (investment of at least EUR 50,000),
• European Venture Capital Funds (EuVECA) as well as European Social Entrepreneurship Funds (EuSEF) (investment of at least EUR 100,000 and written confirmation from the investor that he/she is aware of the risks associated with investing),
• Entities according to § 4 par. 2 letters b) of the Act on Collective Investment (offer exclusively in the form of a private offer, investment of at least EUR 100,000 and fulfillment of other conditions according to § 31d of the Act on Collective Investment).