Answer ... Under Croatian law, alternative investment funds (AIFs) may be either AIFs with public offerings or AIFs with private offerings.
AIFs with public offerings include a sub-category for investment in real estate and are governed by specific rules.
AIFs with private offerings are divided into the following categories:
- private equity;
- venture capital;
- AIFs for investment in real estate;
- funds of funds;
- hedge funds;
- specialised AIFs;
- European venture capital funds; and
- European social entrepreneurship funds.
Answer ... AIFs with public and private offerings can be structured as open-ended or closed-ended AIFs.
Open-ended AIFs are defined as separate assets, without legal personality, incorporated and managed by an external AIF manager (AIFM) in its own name and for the account of investors. The units or shares of open-ended AIFs may be redeemed at the request of the investors, according to the procedures and frequency set out in the AIF’s rules or documents of incorporation, prospectus or offering documents.
Closed-ended funds may be incorporated:
- with legal personality, in which case the AIF is incorporated as a legal person in the form of a limited liability company or joint stock company and can be managed externally (by an AIFM) or internally (by the management board); or
- without legal personality, defined as separate assets without legal personality incorporated and managed by the AIFM in its own name and for the account of investors; although units and shares of the AIF are not redeemable on the investors’ request.
Answer ... The structure of the AIF will determine which set of rules will apply; the applicable rules may be more or less flexible. The structure will also determine:
- the types of investors that may be targeted;
- investment restrictions;
- the types of assets in which investment is permitted; and
other circumstances relevant to the investment strategy of each AIF. For instance:
- open-ended AIFs must be externally managed, while closed-ended funds may be externally or internally managed;
- AIFs with public offerings may be marketed to retail investors and professional investors, while AIFs with private offerings may be marketed only to professional investors and qualified investors; and
- AIFs with public offerings may only hold assets consisting of, for example, securities offered to the public or admitted to trading in Croatia or other EU member states or third countries; while AIFs with private offerings may hold any types of assets permitted under the AIF’s rules, provided that they accord with the AIF’s investment strategy and objectives.
On a general note, AIFs with public offerings are more stringently regulated, especially when it comes to investments and applicable restrictions thereto.
Answer ... The latest available statistics from the Croatian Financial Services Supervisory Agency and reflecting the situation in November 2019 indicate that most AIFs are incorporated as AIFs with private offerings. Out of 36 AIFs, just four are incorporated as AIFs with public offerings. Out of 32 AIFs with private offerings, there are:
- 10 base with private offerings;
- 15 special with private offerings;
- six private equity (out of which one is open-ended with private offerings and five are open-ended funds for economic cooperation); and
- one closed-ended with private offerings.
Answer ... The Ordinance on the Types of AIFs provides for ex ante categorisation of AIFs with private offerings by the nature of their investments, which should therefore be based on these provisions. The ordinance also foresees closed-ended AIFs with public offerings for investment in real estate. As for other AIFs, categorisation should be undertaken on an ex ante basis and determined in the prospectus or the rules; but the final decision on the specific type of AIF is at the discretion of the founders.
The categorisation provided ex ante by the applicable provisions of AIFs with private offerings is as follows:
- Private equity: Assets are predominantly invested in business entities with the objective of optimising their business and financial performance in anticipation of a return on funds invested.
- Venture capital: Assets are predominately invested in start-ups that show potential for growth and expansion.
- Specialised AIFs for investment in specific industries: These may include sustainable development, energy or technology, or specific assets such as artwork, jewellery or gemstones.
- European social entrepreneurship funds: These are AIFs that intend to invest at least 70% of their assets in social entities (ie, entities which have social objectives as their aim rather than the simple maximisation of profits).
- Closed-ended AIFs with public or private offerings for investment in real estate: The assets of these AIFs are predominately comprised of real estate and they can invest only in defined types of assets.
- Funds of funds: These are AIFs that primarily invest in the shares or units of other AIFs.
Answer ... AIFs in Croatia can be externally or (in the case of closed-ended AIFs) internally managed. If managed externally, a separate legal person (AIFM) must be established; if managed internally, the AIF’s management board is responsible for its management. Management includes:
- incorporation of the AIF;
- asset and risk management;
- administrative services; and
Administrative services include, among others:
- legal and accounting services;
assessment of the AIF’s assets; and
- determination of the price of units or shares.
Certain types of AIFMs, as explained in question 4.2, may also perform auxiliary services, such as portfolio management, investment consulting and repository and administration with respect to units or shares of investment funds. Closed-ended AIFs with internal management cannot perform any activity other than management of the AIF.
The AIF Act, in line with the EU rules, prescribes that EU AIFMs can manage AIFs in EU member states other than their home member state, provided that they are authorised by the competent body of the respective member states or establish branches in those other member states. This also applies for non-EU AIFMs, provided that they are authorised by the reference state. This means that non-local AIFMs can perform management services in Croatia.
Lastly, AIFMs can outsource certain specified services, but not to the extent that they become a dormant company. The AIF Act prescribes certain conditions that must be fulfilled by the company to which the services are outsourced, such as necessary qualifications and expertise.
However, given that the effective performance of legal and accounting services also demands knowledge of local law, AIFMs should delegate these services to local advisers. This may also apply to other activities.
Answer ... Under the AIF Act, for every AIF under management and incorporated in Croatia, the AIFM must designate a credit institution with a seat in Croatia, or a Croatian branch office of a credit institution from an EU member state or non-EU state, as a depositary.
Where an AIFM established in Croatia manages an AIF incorporated in another EU state, it must designate a depositary established in the home member state of the AIF. Likewise, where it manages an AIF incorporated in a non-EU state, it must designate a depositary established in the respective state or in Croatia. Alternatively, where Croatia is a state of reference for non-EU AIFMs, the depositary for those non-EU AIFs under management must have its seat in either the home member state of those AIFs or Croatia.
Answer ... There are no express provisions regarding the redomiciliation of AIFs to Croatia. This may be explained by the fact that Croatia does not provide for the redomiciliation of companies. However, an effect similar to redomiciliation can be achieved through cross-border mergers and acquisitions of AIFs, regulated by the Ordinance on Status Changes to AIFs without Legal Personality and Conditions for Changes to Distinctiveness and Type of AIFs (Official Gazette 20/2019).
Following a status change, the AIF transferor ceases to exist without any need to conduct a liquidation procedure; while its assets, rights and obligations are transferred to the newly incorporated AIF or to an existing AIF. Investors in the AIF transferor acquire shares or units in the AIF transferee. Status changes are governed by the law of the home member state of the AIF transferor.
Further to the above, where an AIF is structured as a closed-ended fund with legal personality, it is incorporated as a joint stock company or limited liability company, and thus the provisions of the Companies Act (Official Gazette 111/1993, 34/1999, 121/1999, 52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 111/2012, 125/2011, 68/2013, 110/2015, 40/2019) will apply. The Companies Act sets out rules on cross-border mergers and acquisitions that correspond to the above-described rules. Mergers and acquisitions take effect as of registration of the status change in the relevant court register.