Investment funds in Argentina: regulatory overview

A Q&A guide to investment funds law in Argentina.

This Q&A is part of the global guide to investment funds. It provides a high level overview of investment funds in Argentina, looking at both retail funds and hedge funds. Areas covered include a market overview, legislation and regulation, marketing, managers and operators, restrictions and requirements, tax and upcoming reform.

To compare answers across multiple jurisdictions, visit the Investment Funds Country Q&A tool. For a full list of jurisdictional Q&As visit www.practicallaw.com/investmentfunds-guide.

Contents

Retail funds

1. What is the structure of the retail funds market? What have been the main trends over the last year?

Open-ended retail funds

With open-ended funds shares can be redeemed at any time at the shareholders' request, and issued at any time.

The number of investors is unlimited and the net worth increases or decreases on the subscription and redemption by the investors.

According to the Argentine Securities and Exchange Commission (Comisión Nacional de Valores) (CNV) and the Argentine Chamber of Investment Funds (CAFCI), as of August 2015, there were 365 open-ended funds with combined assets of AR$ 179 billion, including:

  • Equity funds.

  • Fixed income securities funds.

  • Money market funds.

  • Mixed income funds.

  • Infrastructure funds.

Closed-ended retail funds

Closed-ended funds have a fixed number of investors and are created for a fixed term or special purpose. Subscription of the shares takes place during the placement period and shares are not redeemable until liquidation of the fund. Shares are traded in the secondary market.

There is currently only one closed-ended retail fund in Argentina, according to the CNV and CAFCI.

Regulatory framework and bodies

2. What are the key statutes, regulations and rules that govern retail funds? Which regulatory bodies regulate retail funds?

Open-ended retail funds

Regulatory framework.Law No. 24,083 of 1961 (Investment Fund Law) regulates two different types of investment funds, open-ended funds and closed-ended funds. The Investment Fund Law and the supplementary Executive Order No. 174/1993, establish the main requirements on the funds' organisation and operation.

Open-ended funds are also subject to Law No. 26,831 (Securities Law) enacted in November 2012. In 2013, Executive Order No. 1,023/2013 implemented the Securities Law together with General Resolution 622/2013 of the Argentine Securities and Exchange Commission (CNV). The latter consists of a set of rules that enforces and administers the requirements of the Securities Law. The Securities Law and the other supplementary regulations introduced some important amendments, including:

  • The end of self-regulation of the securities market.

  • New types of licences for individuals and companies already engaged, or wishing to engage, in the public offering of securities.

  • New powers to the CNV (see below, Regulatory bodies).

  • Promotion of the participation in the securities market of small investors, including retail investors, trade unions, chambers of commerce, professional organisations and small and medium size companies.

  • Strengthening of the provisions that protect, and prevent abuse against, investors.

Regulatory bodies. The CNV is the principal regulatory body for open-ended funds. It directly regulates, supervises and sanctions irregular conduct and violations made by individuals and companies that participate in the public offering of securities.

In addition, the Argentine Central Bank and Superintendence of Financial and Exchange Entities act as regulatory bodies in cases where a financial entity acts as the depositary company of the fund. These agencies regulate the activity of the financial entities, including authorisation, surveillance and sanctions in case of violations of the regulations.

Closed-ended retail funds

Regulatory framework. Closed-ended funds are subject to the same regulatory regime as open-ended funds (see above, Open-ended retail funds). Closed-ended funds with shares listed on an exchange are also subject to the exchange rules and the CNV regulations.

Regulatory bodies. See above, Open-ended retail funds: Regulatory bodies.

 
3. Do retail funds themselves have to be authorised or licensed?

Open-ended retail funds

Open-ended retail funds must be registered as a retail fund under Law No. 26,831 (Securities Law). As part of the registration process, both the management and depositary company must be licensed by the Argentine Securities and Exchange Commission (CNV). The main steps of the process are as follows:

  • Purchase or lease the offices of the duly licensed management company.

  • Appointment of the duly licensed depositary company (it must be created under the form of a corporation and in general it will be a financial entity previously authorised by the Argentine Central Bank).

  • Drafting of the fund charter (Reglamento de Gestión) that must govern relations between the management company, the depositary company and the shareholders.

  • Acquisition of the software necessary to operate the fund.

  • Drafting of the internal control procedure to ensure compliance of current regulations and the prevention of money laundering.

  • Application for authorisation with the CNV.

  • On approval by the CNV, registration of the fund charter with the Public Registry of Commerce.

There are no regulations that govern the authorisation of foreign open-ended retail funds.

Closed-ended retail funds

In general, the registration process for closed-ended funds is the same as for open-ended funds. However, closed-ended funds with shares listed on an exchange must draft the prospectus of issuance and apply for the authorisation for public offering of its shareholding with the CNV and the stock markets authorised by the CNV.

There are no regulations that govern the authorisation of foreign open-ended retail funds.

Marketing

4. Who can market retail funds?

Open-ended retail funds

Duly licensed managers and depositary companies, and any brokers authorised by the Argentine Securities and Exchange Commission (CNV) to allocate and distribute funds are authorised to market open-ended retail funds.

Closed-ended retail funds

In general, the marketing of closed-ended funds is the same as for open-ended funds.

 
5. To whom can retail funds be marketed?

Open-ended retail funds

Open-ended retail funds can be marketed generally to any investor. Individual investors can subscribe a minimum of AR$1,000 in shares of any fund. The minimum amount for companies or institutional investors is AR$100,000, according to the Argentine Chamber of Investment Funds (CAFCI).

Closed-ended retail funds

Open-ended retail funds can be marketed generally to any investor. Individual investors can subscribe a minimum of AR$1,000 in shares of any fund. The minimum amount is AR$100,000 for companies or institutional investors, according to the CAFCI.

Managers and operators

6. What are the key requirements that apply to managers or operators of retail funds?

Open-ended retail funds

Management companies of open-ended funds need to comply with the following requirements:

  • Be created in Argentina under the form of a corporation (sociedad anónima).

  • Be licensed by the Argentine Securities and Exchange Commission (CNV).

  • Ensure the depositary company complies with its obligations under Law No. 26,831 (Securities Law) and any supplementary laws, and report any irregularities to the CNV.

  • A company's board of directors must be comprised of at least three members and it must have a statutory auditors' committee.

  • Members of the board of directors, statutory auditors' committee, managers and any other officer are forbidden to hold an office at the depositary company.

  • Keep accounts of the operations, including:

    • registering the operations;

    • preparing the financial statements;

    • determining the value of the shareholders' equity and shares of the fund on a daily basis.

  • Make all necessary publications and comply with all the requirements for public information established by the Securities Law and supplementary laws, and the regulations of any other applicable authority (for example, the money laundering regulations of the Argentine Financial Information Agency).

Closed-ended retail funds

See above Open-ended retail funds.

Assets portfolio

7. Who holds the portfolio of assets? What regulations are in place for its protection?

Open-ended retail funds

The portfolio of assets must be held by the duly licensed depositary company. The Argentine Securities and Exchange Commission (CNV) regulations provide that depositary companies:

  • Can enter into sub-custody agreements with companies or entities within or outside of Argentina who are duly authorised by the competent authority to render the services of a securities depositary.

  • Must collect and pay the subscription amounts, dividends and any other sum corresponding to the fund.

  • Must control the performance of the management company and inform the CNV of any infringements of the regulations.

  • Must keep the registry book on its own or through an authorised depository company if shares are book entry shares.

Closed-ended retail funds

See above Open-ended retail funds.

Legal fund vehicles

8. What are the main legal vehicles used to set up a retail fund and what are the key advantages and disadvantages of using these structures?

Open-ended retail funds

Legal vehicles. Under the Law No. 24,083 of 1961 (Investment Fund Law) an open-ended fund must be a co-ownership structure where investors receive shares (cuotapartes) in exchange for their capital contributions.

Advantages. The assets of the fund are under the custody of a depositary company, which are financial entities or special purpose corporations, and cannot act as managers of the fund.

Disadvantages. The co-ownership structure requires that the management company hires a depositary company, increasing the cost and expenses of the structure.

Closed-ended retail funds

Legal vehicles. See above, Open-ended retail funds: Legal vehicles.

Advantages. See above, Open-ended retail funds: Advantages.

Disadvantages. See above, Open-ended retail funds: Disadvantages.

Investment and borrowing restrictions

9. What are the investment and borrowing restrictions on retail funds?

Open-ended retail funds

There are two types of investment restriction, contractual and statutory. The contractual restrictions are set out in each fund charter. The most important statutory restrictions are as follows:

  • Investment in securities issued by the management company or the depositary company is not permitted.

  • Investment in securities issued by the holding company of the management company or the depositary company must not exceed 2% of the holding company's or the controlled company's assets and liabilities.

  • Investment in shares of a public company must not exceed 10% of the fund's total assets.

  • Investment in publicly traded debt securities of a company must not exceed 10% of the company's liabilities.

  • Investment in public bonds issued under the same conditions (that is, several classes of the same public bond) must not exceed 30% of the assets of the fund.

  • Investment in securities issued by the same entity or by entities belonging to the same business group must not exceed 20% of the fund's assets.

  • At least 75% of the fund's assets must be invested in authorised securities issued and traded in Argentina, Chile or parties to the "Mercosur" (Uruguay, Brazil, Paraguay, Venezuela and Bolivia).

There are also many investment restrictions regarding the margins of liquidity and availability.

Closed-ended retail funds

There are no restrictions on the assets of the portfolios.

There are no restrictions applicable to the investment of shares under Argentine law, unless otherwise provided in the fund charter.

 
10. Can the manager or operator place any restrictions on the issue and redemption of interests in retail funds?

Open-ended retail funds

The manager and/or operator cannot place restrictions on the issue and redemption of shares except under unusual circumstances, for example, the occurrence of an event of force majeure. On the occurrence of such an event, if the management company needs to suspend the right to redeem shares, it must serve prior written notice to the Argentine Securities and Exchange Commission (CNV). Suspension of this right must not exceed three business days and requires prior approval by the CNV. Fund regulations can also establish that managers can charge fees for the subscription and redemption of shares.

The fund charter can establish that if one investor wishes to redeem shares representing 15% or more of the fund's net worth, it must serve a prior notice no later than three calendar days under certain circumstances.

Closed-ended retail funds

Closed-ended fund shares are not redeemable at the shareholder's request. A closed-ended fund can place restrictions on the issue and redemption of interests provided. However, the restrictions must be provided in the fund's regulations.

 
11. Are there any restrictions on the rights of participants in retail funds to transfer or assign their interests to third parties?

There are no restrictions on the rights of participants in retail funds to transfer or assign their interests to third parties.

Reporting requirements

12. What are the general periodic reporting requirements for retail funds?

Open-ended retail funds

Investors. A notice must be published on the website of the Argentine Securities and Exchange Commission (CNV), and in a stock exchange gazette or a newspaper with wide circulation within the city where the manager's head office is located, containing the following information:

  • On a daily basis: the value and number of shares issued.

  • On a monthly basis: the portfolio structure. In addition, the bodies of the fund must publish the structure of the portfolio at the offices that are open to investors on a weekly basis.

  • On a quarterly basis: the profit and loss statement.

  • On an annual basis: the annual financial statements and detail of the assets that make up the portfolio of the fund.

Regulators. The CNV must receive the same information as the investors (see above), in addition to any changes in the board of directors and/or statutory auditors' committee's composition of both the manager and depositary companies and the financial statements of both companies.

Closed-ended retail funds

Investors. In addition to the information required for open-ended retail funds, closed-ended funds must publish a notice on the website of the CNV and in the gazette of the stock exchange where shares are listed containing the following information:

  • On a quarterly basis: the statement of profit and loss.

  • On an annual basis: the annual financial statements.

If a positive or negative event occurs in relation to the fund, the management company and/or the depositary company, and which may result in any changes in the shares listed, the management company must inform the CNV and the stock exchange where the shares are listed immediately after becoming aware of such event.

Regulators. See above, Open-ended retail funds, Regulators.

Tax treatment

13. What is the tax treatment for retail funds?

Open-ended retail funds

Funds. Open-ended retail funds are not subject to income tax or presumptive minimum income tax. Where the purpose of a financial transaction is the creation, issuance, offering, subscription and transfer of shares, their proceeds are exempt from VAT.

Resident investors. Resident investors are subject to the following tax treatment:

  • Income tax. Dividends paid by the fund are not subject to income tax. However, in the case of "companies" (in general, companies created under the Argentine laws, local branches of foreign companies, single-person enterprises and individuals developing commercial activities), income arising from the trading of shares is subject to a 35% tax rate on net income.

In the case of individuals, the sale of shares is subject to income tax at a 15% rate on net income. Investment returns received by individuals, as well as capital gains, derived from shares are exempt from income tax if a public offering of the shares is made.

  • Tax on personal assets (wealth tax). Individuals domiciled or residing in Argentina whose assets exceed AR$305,000 are subject to wealth tax. Shares in open-ended funds are considered personal assets for the purposes of this tax. The following rates apply:

    • total net worth from AR$305,000 to AR$750,000: 0.5%;

    • total net worth from AR$750,001 to AR$2 million: 0.75%;

    • total net worth from AR$2 million to AR$5 million: 1%;

    • total net worth over AR$5 million: 1.25%.

  • Presumed minimum income tax. In the case of legal entities and other commercial entities, shares are subject to presumed minimum income tax. The applicable rate is 1% of the company's assets. Income tax paid for a specific fiscal year can be used as a credit against presumed minimum income tax to be paid for the same fiscal year. If presumed minimum income tax is payable in any year, the tax is considered as a credit against income tax during the following ten fiscal years.

Non-resident investors. Non-resident investors are subject to the following tax treatment:

  • Income tax. Income arising from dividends paid by the fund are not subject to income tax. The sale of shares is subject to income tax. The taxpayer can choose to apply a 13.5% rate on the gross income obtained or a 15% rate on the net income. The buyer must withhold and remit the payable tax. Investment returns received, as well as capital gains derived from shares are exempt from income tax if a public offering of the shares is made.

  • Tax on personal assets (wealth tax). Foreign residents holding shares on 31 December are subject to this tax at a rate of 1.25%. Any local resident individual or legal entity holding title, possession, use, disposal, deposit, custody or administration of shares must remit the tax on behalf of the foreign resident. However, if the amount is lower than AR$255.75 the tax is not applied.

Closed-ended retail funds

Funds. Income tax is applicable to closed-ended funds at a rate of 35%. Where the purpose of financial transactions is the creation, issuance, offering, subscription and transfer of shares, their proceeds are exempt from VAT.

Resident investors. Investment returns received by individuals, as well as capital gains, derived from shares are exempt from income tax provided that a public offering of the shares is made.

In the case of "companies" (in general, companies created under the Argentine laws, local branches of foreign companies, single-person enterprises and individuals developing commercial activities), the trading of shares is subject to a 35% income tax rate.

Non-resident investors. Investment returns received, as well as capital gains derived from shares are exempt from income tax, provided that a public offering of the shares is made.

Quasi-retail funds

14. Is there a market for quasi-retail funds in your jurisdiction?

There are no quasi-retail funds in Argentina.

Reform

15. What proposals (if any) are there for the reform of retail fund regulation?

There are no current proposals for the reform of retail fund regulation.

 

Hedge funds

16. What is the structure of the hedge funds market? What have been the main trends over the last year?

Not applicable: there are no hedge funds in Argentina.

Regulatory framework and bodies

17. What are the key statutes and regulations that govern hedge funds in your jurisdiction? Which regulatory bodies regulate hedge funds?

Not applicable: there are no hedge funds in Argentina.

 
18. How are hedge funds regulated (if at all) to ensure compliance with general international standards of good practice?

Not applicable: there are no hedge funds in Argentina.

Marketing

19. Who can market hedge funds?

Not applicable: there are no hedge funds in Argentina.

 
20. To whom can hedge funds be marketed?

Not applicable: there are no hedge funds in Argentina.

Investment restrictions

21. Are there any restrictions on local investors investing in a hedge fund?

Not applicable: there are no hedge funds in Argentina.

Assets portfolio

22. Who holds the portfolio of assets? What regulations are in place for its protection?

Not applicable: there are no hedge funds in Argentina.

Requirements

23. What are the key disclosure or filing requirements (if any) that must be completed by the hedge fund?

Not applicable: there are no hedge funds in Argentina.

 
24. What are the key requirements that apply to managers or operators of hedge funds?

Not applicable: there are no hedge funds in Argentina.

Legal fund vehicles and structures

25. What are the main legal vehicles used to set up a hedge fund and what are the key advantages and disadvantages of using these structures?

Not applicable: there are no hedge funds in Argentina.

Tax treatment

26. What is the tax treatment for hedge funds?

Not applicable: there are no hedge funds in Argentina.

Restrictions

27. Can participants redeem their interest? Are there any restrictions on the right of participants to transfer their interests to third parties?

Not applicable: there are no hedge funds in Argentina.

Reform

28. What (if any) proposals are there for the reform of hedge fund regulation?

Not applicable: there are no hedge funds in Argentina.

 

Contributor profiles

Alejandro Poletto, Partner

Estudio Beccar Varela

T +54 (11) 4379-6839
F +54 (11) 4379-6860
E apoletto@ebv.com.ar
W www.ebv.com.ar

Professional qualifications. Lawyer, Universidad Católica Argentina, Argentina; LLM, Cornell University, USA; Postgraduate in Capital Markets, Universidad Católica Argentina, Argentina.

Areas of practice. M&A; general corporate assessment; banks and financial institutions; capital markets; corporate law.

Languages. Spanish, English, Portuguese

Patricia Browne, Associate

Estudio Beccar Varela

T +54 (11) 4379-6840
F +54 (11) 4379-6860
E pbrowne@ebv.com.ar
W www.ebv.com.ar

Professional qualifications. Lawyer, Universidad de Buenos Aires, Argentina

Areas of practice. M&A; general corporate assessment; banks and financial institutions; capital markets; corporate law.

Languages. Spanish, English


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