An Investment Company, also known as a mutual fund or investment fund, is a legal entity, trust, or contractual arrangement, which through the issuance and sale of its participation quotas to the investing public, obtains funds. In turn, such funds are invested and negotiated for the benefit of investors, either directly or through investment managers, in securities, currencies, metals and commodities, real estate, or any other property determined by the Superintendence of the Securities Market of Panama.
The main benefit of an Investment Company is that it offers investors the opportunity to take advantage of the economies of scale to pay investment managers, who use their expertise to diversify the risks. Through this vehicle, investors can invest in a wide variety of underlying securities, which is often financially impossible without an Investment Company.
Investment companies can be open or close-ended, depending on the attributions the investor has or not to ask for the redemption of his investment.
Open-ended Investment Companies: those who offer investors the right to redeem their participation quotas periodically, either partially or, at the net asset value, minus commissions, charges, and expenses described in the prospectus. Open-ended investment companies can issue a variable amount of participation quotas, without the need to comply with new securities registration requirements, as long as they inform, on a weekly basis, the Superintendence of the Securities Market the number of shares issued as product of the sum of the total subscriptions produced up to date and the subtraction of the produced redemptions.
Closed ended Investment Companies: Closed ended investment companies do not offer to their investors the right to request redemption of their participation quotas before the liquidation of the investment company or only allow redemption under extraordinary circumstances as established by Law. Investors will have right to redeem their investment in the case of the replacement of the investment manager of the investment company.
The Securities Law establishes categories of Investment Companies according to the risk or type of underlying assets or securities that make up the portfolio.
Investment companies can be classified as of variable-income securities, fixed-income securities public or private as long as the percentage of the total investment in each of these securities portfolio exceeds eighty percent (80%) and the mixed investment companies that include two (2) or more of mentioned categories, but does not have the aforementioned percentage in any of said assets. National or international investment companies can be distinguished by the geographic origin of the securities in which they invest, and the latter by the territorial scope to which they refer.
Real Estate Investment Companies are those with the objective of investing and negotiating, in real estate, representative titles of rights over real estate or in the real estate development and administration business in Panama.
Venture Capital Investment Companies are those that invest directly or indirectly, at least 80% of their assets in shares issued by companies that at the time of the investments are made are not registered before a securities regulator nor listed in a local or foreign organized market.
Currency market investment companies refer to those that invest eighty (80%) percent in short-term assets in the currency market.
Investment companies investing in options, futures and derivative instruments refer to those who invest eighty (80%) percent in futures and derivative instruments.
Securities Law and regulations establish the Structures of Investment Companies, which allow different classes or types of quotas to be issued.
⦁ Simple Investment Companies: with only one class of participation quotas and only one investment portfolio.
⦁ Umbrella Investment Companies: Those with multiple classes of participation quota where each one of said classes represents an interest in one distinct investment portfolio.
⦁ Multiple Class Investment Companies: Those investment companies that have multiple classes of participation quota, each class having different arrangements in terms of payment of commissions and marketing costs, redemption and administrative services.
⦁ Main Fund Sourced from Other Funds: investment companies which in turn invest exclusively in another investment company.
The following investment companies must be registered before Superintendence of the Securities Market:
⦁ Those that publicly offer their participation quotas in the Republic of Panama
⦁ The ones being managed in or from the Republic of Panama, unless they are considered private investment companies.
Registration Process before the Superintendence of the Securities Market
We highlight some of the requirements that promoters or persons interested in registering an Investment Company must file before the Superintendence of the Securities Market:
⦁ Application through a licensed lawyer to act in the Republic of Panama;
⦁ Name or business name of the applicant and information on the incorporation of the company and registration in the Public Registry, if applicable;
⦁ Domicile of the applicant, and the commercial address of the entity in case it is different from the domicile;
⦁ Identification of a person appointed as the Investment Manager;
⦁ Identification of the person appointed as Custodian of the Investment Company;
⦁ Identification of the type of fund in question;
⦁ The authorized Capital of the Corporation and the total of the minimum assets with which the Corporation intends to start its operation. In the case of trusts, initial assets subject to trust should be stated;
⦁ Informative Prospectus;
⦁ Amount of participation quotas whose registration is requested for public offering and initial offer value.
The Investment Manager is any person to whom an investment company delegates, individually or in conjunction with other persons, the power to administer, manage, invest and dispose of the securities and assets of the investment company (all investment managers must have a license issued by the Superintendence of the Securities Market).
The Investment Company may entrust the administration of its financial instruments, in whole or in part, to one or more Investment Managers.
The Informative Prospectus is an instrument for disclosure of information on the characteristics, investment policies and risks of the investment company and the investment manager. In addition, it must contain all the information that allows investors to make a judgment on the investment. The information contained in it must be true, clear, precise, sufficient and verifiable.
Alejandro Vásquez V