New Resolutions Implementing the Law on Collective Investment Undertakings Adopted On 14 March 2008, the Securities Commission of the Republic of Lithuania, implementing the new version of the Law on Collective Investment Undertakings (official gazette Valstybės Žinios, 2007, No. 117-4772), which provides for a possibility for management companies, in addition to currently existing regulated collective investment undertakings, to establish special (real estate, hedge, private capital, etc.) collective investment undertakings, the activities of which are not regulated on the EU level, as well as for a possibility to establish investment companies of the closed-ended type, adopted these resolutions:
1. No. 1K-6 On the Rules for Issuing, Amending and Cancelling of Licences for Activities of the Management Company and Investment Company (official gazette Valstybės Žinios, 2008, No. 35-1271). The resolution establishes that management companies which, in addition to current activities are going to engage in management of special collective investment undertakings, will have to apply for supplementing their licence of a management company. The decision on licence supplementing will be taken by the Securities Commission within 3 months as of the submission of all the required data and documents. The resolution came into effect on 28 March 2008.
2. No. 1K-7 On Amending Resolution No. 1K-10 of the Securities Commission of the Republic of Lithuania, dated 22 March 2007 On Approval of the Rules for Capital Adequacy Requirements for Financial Brokerage Companies and Management Companies (official gazette Valstybės Žinios, 2008, No. 32-1140). It provides for specific requirements for the initial capital of management companies, without relating it to the amount fixed in the rules for issuing and cancelling licences for activities of a management company and an investment company with variable capital. The initial capital of an equivalent of at least EUR 125,000 in litas is fixed for management companies existing under the Law on Collective Investment Undertakings, an equivalent of at least EUR 150,000 in litas is fixed for management companies existing under the Law on the Additional Voluntary Accumulation of Pensions, and it has been established that both the initial and the authorised capital of management companies managing pension funds where a part of the state social insurance contribution is accumulated must be an equivalent of at least EUR 300,000 in litas.
A provision was added to the resolution on capital adequacy providing for a requirement for management companies, the value of assets managed by which exceeds EUR 250,000,000, to increase the capital of the company by the amount which must be at least 0.02% of the vale of the managed assets above EUR 250,000,000, and to keep it increasing in this way until the capital of the company reaches EUR 10,000,000. The resolution came into effect on 19 March 2008.
3. No. 1K-8 On Approval of Rules for Use of Benchmarks (official gazette Valstybės Žinios, 2008, No. 32-1141). The resolution was adopted implementing provisions of the Law on Collective Investment Undertakings and the Law on the Accumulation of Pensions, obligating regulated collective investment undertakings and pension funds where a part of the state social insurance contribution is accumulated to use a benchmark. The resolution sets forth the procedure of selection, changing, announcement and calculation of benchmarks.
One or several universally recognised and widely used stock and bond indexes formed by independent persons, that will have to be selected by management companies according to investment types, their proportions, investment region provided for in the investment strategy of each managed pension fund or collective investment undertaking, can be selected as a benchmark. Benchmarks are intended for comparing financial results (return) of pension funds or collective investment undertakings with the return of markets of financial instruments where investments are made. Benchmarks have to create a possibility for the public to properly evaluate financial results of a pension fund or collective investment undertaking, the investment management efficiency, not to mislead existing and potential participants. Management companies will have to give graphs on their websites and compare changes in the value of an accounting or investment unit with changes in the benchmark value, and in case of substantial differences to give related explanations. Other indexes announced in annual reports (standard deviation, alpha, beta) will give investors a possibility to evaluate the risk of the fund and competence of the fund manager. According to the resolution on use of benchmarks, alpha is an index which shows the difference between the change in the value of a unit of a pension fund or collective investment undertaking and the change in the benchmark value in case of a comparable risk level; beta is an index which shows the extent of a change of the value of a unit of a pension fund or collective investment undertaking in case of a change of the benchmark value; standard deviation is a statistical risk index which shows the extent to which changes in the unit value fluctuate or the extent to which changes of the benchmark value fluctuate in comparison with their average change. The resolution came into effect on 19 March 2008. On 28 March 2008, the Securities Commission of the Republic of Lithuania, implementing the new version of the Law on Collective Investment Undertakings (official gazette Valstybės Žinios, 2007, No. 117-4772), adopted these resolutions:
1. On Approval of the Rules for the Content of Prospectuses of Collective Investment Undertakings; The Rules for the Content of Prospectuses of Collective Investment Undertakings (hereinafter referred to as the Rules) establish requirements for the content of the full and short prospectus of special collective investment undertakings. The Rules provide that an umbrella collective investment undertaking must have a common full prospectus, whereas short prospectuses can be prepared for each separate sub-fund. Please note that it is no longer necessary to obtain an approval of the Securities Commission for minor amendments and additions to prospectuses, but it is required to inform the Securities Commission about them, by presenting relevant documents and pointing out the modifications. Minor amendments to prospectuses are considered to be updates in connection with changes in addresses, telephone, fax numbers, names and surnames of individuals, e-mail and website addresses; updates of the historic data and indexes of activities during a previous period; updates of information about other holdings; other amendments of editing character (changes in sentence structures or of certain words when that do not change the meaning and essence of previously given information); inclusion or removal of information about distributors of units or shares of the undertaking, except for inclusion of information about foreign distributors of units of the undertaking.
2. On Approval of the Procedure of Issuing Permits Provided for in the Law on Collective Investment Undertakings and in the Law on the Additional Voluntary Accumulation of Pensions; The Procedure of Issuing Permits Provided for in the Law on Collective Investment Undertakings and in the Law on the Additional Voluntary Accumulation of Pensions (hereinafter referred to as the Procedure) establishes the procedure of approving and amending the summary of the constitutional documents of collective investment undertakings: the summary of the constitutional documents will be approved or amended together with other constitutional documents. Besides, amendments to prospectuses will be approved not within 3 business days but within a general term of 15 days for issue of a relevant permit, as indicated in the Law on Collective Investment Undertakings. The Procedure regulates the issue of a permit for merging investment funds managed by management companies. It is provided that such a permit must be obtained before the investment funds are merged, upon submission of information indicated in the Procedure to the Securities Commission.
3. On Amending and Supplementing the Methods of Calculation of the Net Asset Value. The amendments to the Methods of Calculation of the Net Asset Value are related to a possibility provided for in the Law on Collective Investment Undertakings for collective investment undertakings to invest not only into liquid securities, but also to alternatives investment instruments: real estate; securities issued by companies securities of which are not traded in regulated markets or special collective investment undertakings investing into such instruments. Therefore, it became necessary to provide for ways and methods of evaluation of new investment instruments. The amendments set forth a requirement to ensure the independence of persons determining the value of such instruments from the influence of persons taking investment decisions, to give details of ways of managing the risk related to improper evaluation, ways of solving issues not provided for in the procedures, etc. The procedures of calculation of the net asset value of active pension funds and collective investment undertakings will have to be brought in line with the amendments to the Methods of Calculation of the Net Asset Value no later than on 1 July 2008. All the above-mentioned resolutions will come into effect on the next day after they are published in the official gazette Valstybės Žinios, unless such resolutions set a later date.