Who Can Be an Investor in an Alternative Fund?

Only a limited number of people can be investors in an alternative fund, pursuant to Section 15 of Act no. 240/2013 Coll., on Investment Companies and Investment Funds, as amended (the “ZISIF”).

Retail Investor

An investment in an alternative fund cannot be offered to the public. The public is defined in Section 295a paragraph 2 ZISIF as more than 20 people. Qualified investors are not included in the public. Thus, no more than 20 retail investors can invest in the alternative fund.

A retail investor can then be anyone who has a close connection to the alternative fund. In general, a close connection is not just the establishment of a business relationship. The relationship of the retail investor to the alternative fund must be closer, such as a partnership or other long-term relationships.

Qualified investor

In addition to 20 or less retail investors, qualified investors can invest in an alternative fund without limits on the number of investors. Their participation in the alternative fund is only restricted by Section 16 ZISIF, which concerns the total amount of assets under management.

A qualified investor is a person who meets the criteria set out in Section 272 ZISIF. In simplified terms, the qualified investor can be:

1. a professional customer as defined in Section 2a, paragraphs 1 and 2 of Act no. 256/2004 Coll., the Capital Markets Act, as amended (the “ZPKT”), i.e. a stock broker, a bank, an investment company, or a fund or a legal entity established for business purposes meeting the financial volume criteria specified in Section 2a, letter a ZPKT;
2. a manager or a comparable foreign entity and a pension company, if they act on behalf of a certain fund they manage;
3. a legal entity that collects money or items of value for the purpose of their joint investment in ownership interest in another legal entity with the aim of long-term development of this legal entity while meeting the conditions of Section 2, letter b, point 1 or 2 of the ZPKT;
4. a legal entity subordinate to a central state administrative body;
5. a person who declares that they are aware of the risks associated with investing in a fund meeting the following criteria:
   1. is a co-owner, founder, or member of another investment fund; and
   2. invests in another investment fund
      when the above funds have the same manager and administrator; and
   3. the amount of the repaid deposit or repaid investment in all these funds is at least
      1. EUR 125,000 or
      2. CZK 1,000,000 and the fund manager or administrator performs a suitability test,
6. a person who declares that they are aware of the risks associated with investing in the fund meeting the following criteria:
   1. the amount of the repaid deposit or repaid investment in the fund is at least
      1. EUR 125,000 or
      2. CZK 1,000,000 and the fund manager or administrator performs a suitability test.

Restrictions on the definition of a qualified investor for participation in an alternative fund

The status of a qualified investor in two cases depends on fulfilment of the conditions for the repayment of a certain amount of the deposit or investment and the affidavit of the investor. In these cases, two volume criteria come into play. One is basic, which sets the limit of paid-up participation at EUR 125,000, upon fulfilment of which the person becomes a qualified investor, and one less strict, where only CZK 1,000,000 needs to be repaid and the fund manager or administrator performs a suitability test with a positive result.

It is the less strict criterion of repaying a deposit or investment of only CZK 1,000,000 and performing a suitability test by the fund manager or administrator in the conditions of an alternative fund according to Section 15 ZISIF that is not applicable.

In order for this less strict criterion to be applicable in the conditions of an alternative fund, the suitability test would have to be performed by an entity authorised by the CNB. However, when obtaining authorisation, the manager of the alternative fund does not obtain authorisation, but is only entered in the list of persons maintained by the CNB. When registering a manager of an alternative fund, there is no detailed examination of his relevant expertise, and therefore, it cannot be assumed that they have carried out a suitability test in a qualified manner.

Under the terms of an alternative fund, the group of persons who are granted the status of a qualified investor is thus narrowed down to a stricter criterion of repayment of a deposit or investment of EUR 125,000.

If you are interested in our services in the area of alternative fund management (mini-fund) in accordance with Section 15 ZISIF or other financial services, please contact us at info@stuchlikova.com or at the phone number +420 222 767 393 and arrange initial consultation.