Who Can Be an Investor in an Alternative Fund?

Only a limited range of persons may invest in an alternative fund under 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 client as defined in Section 2a, paragraphs 1 and 2 of Act no. 256/2004 Coll., the Capital Markets Act, as amended (the “ZPKT”), for example an investment firm, a bank, a fund management company, a fund, or a legal entity established for business purposes meeting the financial size criteria specified in Section 2a(2)(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 unitholder, 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 paid-up contribution or 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 paid-up contribution or 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

In two cases, qualified investor status depends on paying in a specified contribution or investment and making an investor declaration. Two financial thresholds apply: the basic threshold of EUR 125,000, on meeting which the person becomes a qualified investor without further requirements, and a lower threshold of CZK 1,000,000, which also requires a positive suitability assessment by the fund manager or administrator.

The lower threshold of a paid-up contribution or investment of CZK 1,000,000 combined with a suitability assessment by the fund manager or administrator is not applicable to an alternative fund under Section 15 ZISIF.

For this lower threshold to apply to an alternative fund, an entity authorized by the CNB would have to perform the suitability assessment. An alternative fund manager, however, obtains the right to carry out its activities through entry in a list maintained by the CNB, rather than an authorization. Registration does not involve a detailed examination of the manager’s expertise, so it cannot be assumed that the manager would carry out the suitability assessment competently.

For an alternative fund, the range of persons granted qualified investor status is therefore restricted by the higher threshold of a paid-up contribution 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.