On July 27, 2016, the Securities and Insurance
Superintendence ("SVS") issued the general rule 410
("NCG 410"), which supplements the list of entities that
qualify as "institutional investors" according
to article 4(e) of the Securities Market Law N°18,045
("LMV"). The published version of the rule was preceded
by three different drafts proposed by the SVS and submitted for
comment to the market (in November of 2015 and in January and
February of 2016), undergoing several changes in comparison to its
The relevance of the concept of "institutional
investor" is principally related to rules
applicable to funds and portfolio management (Law 20.712,
also referred to as "LUF"). In the event that one of the
shareholders of an investment fund is an institutional investor,
the LUF grants certain flexibility in relation to the requirements
of organization and structure of such fund, for both publicly
traded investment funds and private investment funds. For example,
publicly traded investment funds may have less than 50 shareholders
if at least one of them is an institutional investor. Likewise,
institutional investors are the only type of investors allowed to
own more than 35% of the net equity of a publicly traded investment
The concept of institutional investor is also important for
other purposes. Institutional investors are considered
"qualified investors" and, as such, they may be
a target for the public offering of securities aimed
exclusively to qualified investors, as well as addressees
of private offers of securities regulated by SVS general
rule 336. Likewise, the information about the decisions
made by institutional investors regarding the acquisition or
disposition of securities (or the acceptance or refusal of specific
offers of securities), will be deemed as "insider trading
information" (información privilegiada).
Pursuant to LMV, the following investors are deemed
institutional: banks, financial corporations, insurance
companies, national reinsurers, fund managers authorized by law
(for example, pension fund managers –AFP– and general
asset managers) and also the entities established by the SVS by
means of a general rule, provided that their main line of business
is investing with the resources and on behalf of third parties and
that their participation in the market is deemed relevant.
Although the SVS has addressed specific cases in the past, NCG
410 sets out general parameters that define which entities qualify
as institutional investors. Notably, the new rule includes specific
references regarding foreign entities, private investment funds and
portfolio managers. The entities that qualify as institutional
investors under NCG 410 are the following:
Foreign entities whose main
business is subject to the regulation of banks, insurance companies
or reinsurance in accordance with the legal framework of
their home country;
Foreign funds or other
foreign collective investment vehicles, provided that
their entity responsible for its investment decisions or its own
managers are supervised by a regulator with similar authority as
the SVS or Chilean Pensions Superintendence, or that the fund
itself is supervised by these regulators;
Chilean private investment
funds regulated by the LUF as long as they meet certain
requirements regarding the number of years they have been operating
and dispersion of property;
Entities registered in the
portfolio managers registry of the SVS, provided that the
manager manages (i) a minimum amount of UF 500,000 (approximately
USD 20 million) and with at least 50 unrelated portfolio clients,
or (ii) one or more portfolio clients for an amount equal to or
higher than UF 1 million (approximately USD 40 million);
Governmental or state
institutions and sovereign funds authorized to invest in
financial instruments of the capital markets, and
Multilateral or supranational
entities created by several states whose resources are
intended to promote the development of capital markets.
Finally, NCG 410 confirms what has already been stated by the
SVS in some of its particular rulings which indicate that fund
managers and portfolio managers shall be deemed as institutional
investors only when their investments are made on behalf of their
clients or the portfolios they administer and not with their own
resources or those of related persons.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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