In recent years, investment funds have become increasingly popular with investors. It’s, in part, because of the benefits they can provide to investors.

What is an investment fund?

An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. Investors share profits or losses proportionally, depending on the initial investment.

An offshore investment fund aims to increase the return on investment thanks to the absence of taxes in a lot of offshore jurisdictions.

A person with specific training and demonstrable experience regulates and manages this type of offshore fund.

What are the characteristics of an investment fund in Estonia?

To get an investment fund license in Estonia, two main options are available:

• Large Fund Manager: hard to obtain due to very strict requirement
• Small Fund Manager: easier to get. It allows for having assets with a value which not exceed 100 million euros.

At FBC Mundo Offshore, we do recommend our clients to lean toward a Small Fund Manager Licence. It’s a great option for anyone who wants to manage his own fund.

What are the requirements to start working with a Small Fund Manager Licence?

To start operation as a Small Fund Manager in Estonia, you first need to get authorization from the Financial Supervision Authority (FSA) informing them about the intentions to start the Fund activities and to pay the government fee.

Other requirements:

– No share/authorized capital is needed

– No substance is needed

– Fund Manager (LLC) is required to have at least two competent board members (with relevant background, experience, skills, and education)

– No public offering. 

What are the benefits to have a Small Fund Manager Licence?

Registration of the Small Alternative Investment Fund within the jurisdiction of the Republic of Estonia provides certain advantages, which, among others, include:

– Management of total assets of up to 500 million euros

– Easy establishment

– Simplified registration form in 30-60 days

– Universal investment portfolio

– Ability to manage stocks, derivatives, cryptocurrencies, real estate, and other financial assets and commodities

– Full confidentiality: the lists of the fund’s investors and the size of their investments are not public information

– Liability limitation: Material liability of investors is limited to the amount of their investment (contribution)

How is the investment fund structured?

In order to set up the Small Alternative Investment Fund (also known as AIF), you must register two legal entities in the Commercial Register of the Republic of Estonia.

• The Fund Manager

It’s a commercial organization whose main activity is the management of one or more funds. It’s all about the management of the financial assets of investors in order to maximize profits with minimal risk. Small Fund Manager has the right to control several funds, but the total assets of the managed funds cannot exceed 100 million euros.  One particular case involves investments made for long periods (from 5 years or more) without using financial leverage (income gearing), allowing the funds’ total assets to reach 500 million euros.

• The Limited Partnership Fund (LPF)

It’s the easiest to register, simplest to manage and the most common legal form for the Small Alternative Investment Fund also called a special fund. LPF, as a form of a legal entity, is a type of Limited Partnership specified in the Commercial Code of Estonia. To set up a LPF, you need at least two people: a General Partner, whose role is most often assumed by the Fund Manager, and a Limited Partner (the investor).