Investment Funds in Egypt

user Mariam Nabil calender 25 Jun 2024 views 127 Views
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Egypt has a growing investment fund industry that has seen significant expansion in recent years. The primary piece of legislation that regulates Investment Funds in Egypt is the Capital Market Law No.95 of the Year 1992 and it’s Executive Regulation No.135 of the Year 1993.

The Egyptian Financial Supervisory Authority (FRA) regulates and oversees the country’s investment fund sector.

The regulatory framework of the law aims to provide investor protection, promote transparency, and maintain the stability of the investment funds industry in Egypt. However, the laws and regulations are subject to periodic updates and amendments by the FRA and other authorities.

According to the Egyptian Financial Supervisory Authority, in mid-2023, there were over 120 registered investment funds operating in Egypt, with total assets under management (AUM) exceeding 120 billion Egyptian pounds. The majority of these funds focus on domestic Egyptian assets, though some also allocate capital to regional and global markets.

The Executive Regulation No.135 of the year 1993 of the Capital Market Law defines Investment Funds in Article No.141 as: “A collective investment vehicle that takes the form of a joint-stock company and aims to provide investors with the opportunity to collectively participate in investments in the areas specified in these regulations.”

The main types of investment funds in Egypt according to the Capital Markets Law No.95 of the Year 1992 are:

  • Open-ended Funds: These funds allow investors to subscribe and redeem their units on a regular basis, typically daily or weekly.
  • Closed-ended Funds: These funds have a fixed number of units and are traded on the Egyptian Exchange.
  • Money Market Funds: These funds invest in short-term, low-risk instruments like treasury bills and certificates of deposit.
  • Equity Funds: These funds invest primarily in stocks and other equity-related securities.
  • Fixed Income Funds: These funds invest in debt instruments like bonds and Sukuk.
  • Balanced Funds: These funds invest in a mix of equity and fixed income securities.

Fund Management and Governance:

Investment funds must be managed by a fund manager, which can be a bank, a financial institution, or a specialized asset management company.

The fund manager is responsible for making investment decisions, managing the fund’s portfolio, and ensuring compliance with regulatory requirements.

Funds must have a board of directors or a fund management committee responsible for overseeing the fund’s operations and decision-making.

Funds must also appoint a custodian bank to hold the fund’s assets and ensure the safekeeping of investor funds.

Fund management companies must be licensed and regulated by the FRA. These companies employ professional fund managers to make investment decisions on behalf of the fund.

Funds are required to have a board of directors that oversees the fund manager and ensures the fund is being operated in the best interest of investors.

There are restrictions on the types of assets funds can invest in and the level of risk they can take on, based on the fund’s investment objectives and target investor profile.

Funds must provide detailed reporting to the FRA and investors on the fund’s holdings, performance, fees, and other key information on a regular basis.

Investors can buy and sell shares in mutual funds through banks, brokerage firms, and other authorized distributors. Fund shares are priced daily based on the net asset value of the fund’s underlying investments.

Requirement and conditions for registration in the Fund:

  • Registration with the Financial Regulatory Authority (FRA):

All investment funds operating in Egypt, regardless of their type or investment strategy, must be registered with the FRA.

The registration process involves submitting a comprehensive set of documents, including the fund’s prospectus, articles of association, and details of the fund manager and other key personnel.

  • Minimum Capital Requirements:

Investment funds in Egypt must meet minimum capital requirements set by the FRA, which vary depending on the fund type:

Money market funds: Minimum capital of 20 million Egyptian pounds

Equity funds: Minimum capital of 50 million Egyptian pounds

Other fund types: Minimum capital between 20-50 million pounds, depending on the specific category.

  • Fund Prospectus:

The fund prospectus must contain detailed information about the fund’s investment objectives, strategies, risks, fees, and other relevant details for investors.

The prospectus is a critical document that must be approved by the FRA before the fund can be registered and launched.

  • Fund Manager Qualifications and Fit-and-Proper Test:

Fund managers must have relevant educational qualifications and a minimum of 3-5 years of experience in investment management or the financial sector.

They must also pass a fit-and-proper test conducted by the FRA to assess their integrity, competence, and financial soundness.

  • Ongoing Compliance:

Registered investment funds must comply with the FRA’s regulations on an ongoing basis, including submitting regular reports, maintaining proper accounting and internal control systems, and adhering to investment restrictions and limits.

The FRA has the authority to suspend or revoke a fund’s registration if it fails to comply with the regulations or if there are concerns about protecting investor interests.

In the latest regulatory update and in continuation of the efforts undertaken by the Financial Supervision Authority, the Authority issued two decisions to continue developing the capital market and attract more investments:

  • Resolution No. 223 of the Year 2023 amended resolution No. 58 of the year 2018 regarding the rules, controls and procedures for licensing banks and some companies that engage in non-banking financial activities to undertake, by themselves or with others, the activity of investment funds, it also aims to add companies that practice the activity of financing medium, small and micro enterprises, and consumer finance companies, to the entities with which banks, insurance companies, and investment banks may practice the activity of investment funds.
  • Resolution 224 of the year 2023 amending the Decision No. 52 of the year 2014 regarding the controls and procedures for issuing investment fund documents in batches and approving the closed investment fund company to issue more than one issuance of documents, to facilitate the procedures for establishing and working system for investment funds and overcoming any obstacles and developing its performance.

The FRA’s regulatory updates to the investment fund industry in Egypt represent a significant step forward in developing a more robust and inclusive ecosystem. By addressing challenges in licensing, operations, and documentation, the regulator has created an environment more conducive to the growth and diversification of investment funds.

Looking ahead, the FRA’s strategic focus on investment funds aligns with Egypt’s broader economic modernization agenda. As the country seeks to attract foreign investment, integrate with global markets, and support domestic SMEs, a well-regulated investment fund industry can serve as a critical channel to mobilize both domestic and international capital.