One of the important methods used by foreign investors to enter the capital market and invest in securities is portfolio investments in foreign investment funds. As known, investment funds provide management of portfolios of capital market instruments such as bonds, notes and equities in return for investors’ participation shares. The aim here is to provide many financial services rather than providing an instrument that gives the investor the right of ownership. In terms of foreign investment funds, these financial transactions are carried out with investment funds or collective investment organizations established abroad.
In Türkiye, the existing regulations on foreign investments are set out in the Capital Markets Law (“the Law”) and Communiqué No. VII-128.4 on Foreign Capital Market Instruments and Depository Receipts and Foreign Investment Funds (“the Communiqué”), which sets out the principles and procedures in accordance with the Law. Pursuant to the relevant regulations, an application to the Capital Markets Board of Türkiye (“the Board”) is mandatory in order to carry out transactions in foreign mutual fund shares, which are issued by mutual funds established abroad and which are characterized as other capital market instruments, in Türkiye. Within the scope of the application to be made, various conditions regarding the investment funds of foreign investors must be fulfilled. As a matter of fact, the issuer of the fund must first obtain authorization from the relevant authority in its own country, at least 3 years must have elapsed from the date on which the shares started to be sold abroad, and the current value of the shares to be sold in Turkey must be at least EUR 2,200,000 or equivalent monetary value as of the application date.
On the other hand, it is also stipulated that the foreign fund to be sold must have a representative in Türkiye and a written agreement must exist between this representative and the foreign fund. This is because the purchase and sale transactions of foreign mutual funds are realized only through the said representative. In this context, the representative is obliged to apply to the Board with the required information and documents (prospectus, investor information form, application form and other documents determined by the Board) in order to realize the sale of the fund shares with or without public offering and with the request for approval of the prospectus. Additionally, it should be noted that the original and Turkish summaries of the financial reports, independent audit reports and other reports of the relevant foreign investment funds prepared in accordance with the legislation of the country to which they are subject and international accounting standards must be reported to the Public Disclosure Platform (“PDP”).
The reflection of foreign investment funds in Europe and the portfolio investments of foreign investors in Europe are considered as Alternative Investment Funds (‘AIF’). These funds include hedge funds, venture capital, real estate funds and especially private equity funds, which are different from the scope of Under the Collective Investment in Transferable Securities (‘UCITS’) regulations. Alternative investment funds are regulated by the European Union Directive 2011/61/EU of 8 June 2011. The Directive defines the investors investing in the relevant funds as ‘Alternative Investment Funds Managers’ and imposes various obligations on the Managers. In summary;
- Pursuant to Chapter 2, Article 6, in order to make the investment concerned in a Member State, the manager must first obtain authorisation from the competent authorities of his home country. In order to obtain this authorisation, information on the effective conduct of its business in its home country, shareholding details and a programme of activities setting out its organisational structure must be submitted.
- Pursuant to Section 2, Article 9, Managers are required to have an initial capital of at least EUR 125,000. In addition, the Managers are required to have appropriate additional resources or insurance to cover potential risks related to the activities carried out.
- Section 3, Article 15 requires that the risk management systems of the Managers be reviewed at least once a year at an appropriate frequency and that these systems be adapted as necessary.
- Section 3, Article 19 requires an appropriate and independent valuation of the assets of the investment fund and Article 21 requires the appointment of a depository for each investment fund managed pursuant to Section 3, Article 19.
- Section 4, Article 22 requires the preparation of an annual report for each managed and marketed investment fund in the sixth month following the end of each financial year. This annual report must be made available to the investors, to the competent authorities of the Member State and, if necessary, to the Member State.
As observed, the relevant Directive mainly regulates foreign investment funds in terms of the persons who will make investments and transactions for these funds. At the same time, the Directive contains comprehensive provisions and stipulates strict rules especially in terms of authorization, risk management systems, independent audit and transparency.
