Investment funds in Belarus

An investment fund is an organization that accumulates the funds of shareholders and invests them in order to return at a profit after an agreed period of time.

Fund investors (limited partners, LP) are individuals, organizations, and institutional investors. The financial resources of fund shareholders can be invested in stocks, bonds and other securities, real estate, precious stones, currency, etc.

It is noteworthy that within the framework of the investment fund, an investor has no impact on the activities of the fund or portfolio companies: the investor may vote for investment decisions, make statements and come up with proposals. Competent investors can be useful in the activities of the fund, as they have a wide network of contacts and industry expertise, and can help develop the assets of investment funds.

For example, Zubr Capital Fund I, which is managed by “Zubr Capital” investment company. In 2016, the company announced closing of the fund amounting to 50 million USD. The fund investors were entrepreneurs from Belarus, Russia and Kazakhstan, as well as major investment institutions, including the European Bank for Reconstruction and Development. Further, the fund team began to manage the money received and invest it as arranged between the investors. ZCFI invest in Belarus companies. The lifetime of this fund  is 7-10 years, during which the investors will receive their money profitably. 

 Advantages of investment funds in Belarus

Investing through professional investment funds is beneficial for several reasons.

  • Firstly, it allows diversifying the investment portfolio even with a minimum investment amount.
  • Secondly, Belarusian investment funds are highly specialized in the industry and have their own focus, in which they are well versed. An unprofessional investor will have to spend a lot of time and efforts in order gain insight on a new area.
  • Thirdly, when investing through a fund, you get all the competencies of a large team: analysts, financiers, HRs, lawyers. Skimping on the cost is a significant advantage compared to self-investing. The management organization takes on a large amount of work with assets.

It should not be left unnoticed the advantages that the company receives when working with investment funds.

First of all, it is an access to cheaper money in comparison with a bank loan. Many companies operate without tried and tested business processes, reporting system and distribution of roles in the company. Expertise of funds contributes to the establishment of processes within the company and more efficient functioning of business.

Zubr Capital - Belarusian investment company - in its activities and work with portfolio companies follows the rule “order beats the class”. You can get into the flow and fill a free niche in the market, but, in the course of time, any business will have competitors with a more innovative product or efficient process organization. To maintain their positions, the team must understand where their business is moving, how the company will develop in the coming years, which depends on the business participants. Answering such questions in chaos is much more difficult.

Interest for investors

From all of the above, it becomes clear that investment funds are part of the financial ecosystem of the government, and expand opportunities of fundraising for public and private companies as well. Now let’s focus on the interests of investors.

Around the world, investing in investment funds is one of the easiest and most profitable ways to increase savings of citizens. In some countries, such as Sweden, there are special government programs that train people to invest part of their earnings in stocks. Over time, it brings a good investment income to the entire population of the country.

However, not every resident of Belarus has sufficient information about the financial market for competent investment. In this case, an investment fund may come to his aid. In such a situation, a person invests, and all complex operations for him are performed by the management company.

 Advantages of investment funds for investors:

Transparency

An investor has the right to regularly receive reports on fund investments, current value of companies, plans to withdraw from portfolio companies, as well as expenses incurred by the fund management company.

As a rule, reporting is sent to investors once a quarter, but, if required, some questions can be clarified at other times.

Portfolio diversification

The portfolio of an investment fund may include various assets (stocks of companies, securities, precious metals, etc.). All this allows maintaining the high value of the portfolio, even if part of the assets becomes less liquid.

Accessibility

Barrier of entry may vary depending on the fund type and its specifics. There are investment funds with different barriers of entry. With regard to professional venture or seed funds, the investment amount starts from 10,000 USD. In private equity funds, the minimum check is much higher.

Professional management

Investigating a niche, evaluating a company or market requires resources and experience. This work is undertaken by investment funds. As a result, it is easier to invest through a fund, since you get a high-quality selection of assets, their valuation and professional management.


 Types of investment funds in Belarus and the main differences between them:

In Belarus, the “Law on Investment Funds” came into force on July 23, 2018, which regulates the main aspects of their work. In the future, the Law should facilitate the integration of the national financial market into the global ecosystem.

The most popular source of funding in the country is still a bank loan. However, it is important to understand that the banking system resources are limited and sometimes are expensive to use, therefore, alternative sources of funding should be sought. Funds are an opportunity to receive “long-term money” that a company can use over a long period of time.

The investment market in Belarus is at an early stage of development: various investment communities and funds, and the investment culture as a whole, are underdeveloped in the country. A diverse and competitive financial market is a sign of developed economy, to which the investment funds in Belarus are only moving.

Based on the international experience, it can be seen the positive impact of investment funds on the national economy: 

  1.  investment funds contribute to attracting investment for the economic development by institutional investors and global organizations,
  2. acting as an alternative source of funds for companies, they can compete with banks in raising funds of the population,
  3.  funds stimulate demand for securities and influence the national financial market development,
  4. investment funds offer an opportunity to local successful entrepreneurs to invest domestically and develop the local economy,
  5. expand opportunities for increasing and preserving incomes of citizens.
  6. help to develop the national stock market

Types of investment funds in Belarus

According to the “Law on Investments”, two types of investment funds can operate in Belarus:

  • Joint-Stock Investment Fund.
  • Unit Investment Fund (open and closed form).

 Let’s gain insight on the features of each of these funds.

 Joint-Stock Investment Fund. It is a Joint-Stock Company (JSC), whose shareholders are investors. Investors may join the founders immediately or later by purchasing stocks.

Unit Investment Fund (open and closed form). It operates with the participation of the management company that issues investment units. Over time, if successful, their value will increase. UIFs, in turn, can be divided into open and closed. Open unit investment funds trade units on an ongoing basis, closed – only at the stage of establishing the fund.

It is worth noting that today many local funds with the participation of foreign investors are forced to structure their work in jurisdictions where “English law” is in force in order to be able to protect interests of their investors.

 The main differences between investment funds

 

Joint-Stock Investment Fund (JSIF)

Unit investment fund (“UIT”)

Legal entity status

+

-

Asset management form

Independently / via the management company

Via the management company

Collective investment vehicle

+

+

Investment transparency

+

-

Investment liquidity

+

-

Access to fund status information

+

-

 Income, risks and guarantees for holders of investment shares in Belarus

An investment unit is a security granting its owner the right to dispose the share of the unit investment fund that it owns. At the stage of the investment fund formation, the unit price is fixed, however, after the initial placement, the unit value becomes estimated. Therefore, when determining the unit price, the net equity of the fund cleared of management expenses is divided into the number of units.

The value of the investment unit indicates the fund efficiency: with an increase in the unit value, the investor’s return also increase.

 The investor has the right to sell units. So when working with open UIF, the unit holder has the right to sell units at any time. When operating within the framework of closed UIF, a sale can be carried out only upon termination of the activities of this fund.

 Despite the fact that investment funds are usually managed by experienced teams, the fund returns are not guaranteed. It is important to realize that investors always bear various risks due to changes in the global market situation or the state of the economy of the country selected for investment.

 To minimize risks, it is worth to pay attention to the search for a fund or management company. The following steps can be taken to reduce risks:

  • study the track record of the investment fund and the trustee managing the property of the fund, whether there are successful transactions in their portfolio and return to investors,
  • analyze the investment declaration – a document spelling out the investment strategy, investment focus, potential goals of the fund,
  • diversify your investments: invest in several funds, use other financial instruments.

 Protection of the rights of unit holders and the responsibility of the management company to investors are defined at the legislative level. The fund is liable to the unit holders to the extent of its assets, if the fund’s assets are not enough to settle obligations to investors, the assets of the management company may be enforced.

The procedure for the formation and use of the investment funds in Belarus

According to the Law of the Republic of Belarus “On Investment Funds”, the following procedures are required to open an investment fund:

  1. Decide on the type of fund (unit or joint-stock);
  2. Formulate the Charter for the joint-stock fund or the Rules for the unit fund;
  3. Decide on key investment targets, form an investment policy and communicate this information to the authorized body;
  4. Conclude an agreement with the management company or other persons provided for by the Law.
Expert opinion
Alina Sidorovich Controlling Analyst
It cannot be denied that investment funds are an important link in the economic system of developed economies of the world. Satisfying the needs of investors in increasing their return, investment funds contribute to the development of promising business at various stages of its maturity. With a large number of advantages of funds in Belarus, an investment culture is still being formed. However, in this matter, “lag behind” cannot be evaluated as something negative. Quite the contrary – a lag of a few steps makes it possible to evaluate and adopt the best world practices and, if possible, avoid mistakes in the formation of investment infrastructure of the country.
Alina Sidorovich Controlling Analyst
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Alina Sidorovich Controlling Analyst