The alternative funds sector in Serbia is gradually evolving, with recent government initiatives aimed at enhancing the domestic capital market and aligning it more closely with European standards. Currently, Serbia has established eight alternative funds—four open and four closed. The government has approved new regulations that are anticipated to attract more investments in this sector, according to Bloomberg Adria.
Understanding investment funds
Investment funds are collective investment vehicles where capital is pooled from various investors to invest in a diverse range of assets with the goal of generating profits while adhering to relevant regulations and managing investment risks. The assets within these funds are owned by the fund members in proportion to their contributions, and are managed separately from the fund management company. The operations of investment funds are governed by the Law on Open Investment Funds with a Public Offer and the Law on Alternative Investment Funds, with oversight by the Securities Commission.
What are alternative investment funds?
The Securities Commission identifies two primary types of investment funds: open-end investment funds with public offerings and alternative investment funds (AIFs). The former are subject to stricter regulations and carry lower risks, while AIFs provide more flexibility in investment strategies, making them suitable for professional and semi-professional investors. These funds can focus their investments heavily in specific companies or sectors, potentially exerting influence over management decisions.
Types of alternative investment funds
AIFs can be structured as open or closed funds, depending on the investment unit purchase rights. Public offerings of shares cater to a broader investor base, while private offerings are restricted to knowledgeable, professional investors.
Fund Structure: Open vs. closed funds
- Open alternative investment funds: These are not legal entities but are managed collectively for the benefit of members. Investment units can be bought or sold at the request of members.
- Closed alternative investment funds: These may be non-legal entities, meaning their investment units cannot be redeemed by members upon request, or they can be structured as legal entities (e.g., joint-stock or limited liability companies) where shares cannot be redeemed.
Investment decision-making
The portfolio manager, who must be authorized by the Securities Commission, makes investment decisions. AIFs can invest in a variety of assets including transferable securities, real estate and shares in other funds, in line with regulatory standards.
Understanding investment units
An investment unit represents a proportional share in the fund’s total net assets. Investors can calculate their investment’s value based on the daily value of the investment units.
Costs and fees
Management companies are required to specify the fees charged to investors and the fund’s assets in their business rules and prospectus. Fees can significantly impact investment returns and understanding these costs is essential for potential investors.
Recent sevelopments in Serbia
The Serbian government adopted a draft law aimed at amending the Law on Alternative Investment Funds. Key changes include lowering the minimum investment amount for semi-professional investors from €50,000 to €5,000 and adjusting capital requirements for funds. This is expected to enhance the attractiveness of AIFs for smaller investors and stimulate the local economy.
The draft law also introduces provisions for the establishment of a centralized registry for pledges on investment units, which could facilitate additional borrowing options for investors. The Ministry of Finance anticipates that these adjustments will boost investment in innovative and small businesses, contributing to overall economic growth.
Furthermore, changes to the Law on Personal Income Taxes are also proposed to limit tax avoidance strategies involving AIF investments. Under the new rules, funds must remain invested for at least three years to retain tax benefits, addressing concerns about short-term tax optimization practices.
Overall, these legislative changes signal a concerted effort by the Serbian government to foster a more dynamic and inclusive capital market.
