Spain: An attractive country for investment
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2.6 Closed-ended type Collective Investment Entities
Law 22/2014, of November 12, 2014, regulating venture capital entities, other closed-ended type collective investment entities and the management companies of closed-ended type collective investment entities, and amending Law 35/2003, of November 4, 2003 on collective investment schemes18 ("Law 22/2014") amends the law on venture capital entities in Spain, by repealing Law 25/2005, of November 24, 2005, on venture capital entities and their management companies.
The term "closed-ended type investment" is defined as that performed by venture capital entities and other collective investment entities at which, in accordance with their divestment policies, (i) all divestments by their members or unit-holders must take place at the same time, and (ii) the sums received in respect of divestment must be received according to the amount due to each member or unit-holder by reference to the rights they hold under the terms established in the bylaws or regulations.
Closed-ended type collective investment must be carried out in Spain by two types of entities:
- "Venture capital entities" or "ECR" (Entidades de Capital Riesgo with a similar definition to that provided in Law 25/2005), which can take the form of funds ("FCR" – Fondos de Capital Riesgo) or companies ("SCR" – Sociedades de Capital Riesgo).
- Other types of entities which the Law 22/2014 calls "closed-ended type collective investment entities" ("EICC"- Entidades de Inversión Colectiva de Tipo Cerrado), a new vehicle created by the Law 22/2014 which are defined as collective investment entities which, without having any commercial or industrial purpose, obtain capital from a number of investors, through marketing activities, to invest it in all types of assets, financial or otherwise, subject to a predefined investment policy. Closed-ended type investment entities can be either funds ("FICC") or companies ("SICC"). This new type of entity will include any companies that might have been operating in Spain by investing in non-listed securities but failed to meet the requirements under the regime for investments and diversification of venture capital.
Both types of entities must be managed by an authorized management company in accordance with the Law 22/201419. The basic difference between venture capital entities (ECRs) and closed-ended type collective investment entities (EICCs) is that venture capital entities have a smaller investment scope than closed-ended type collective investment entities. Mirroring the requirement in the now repealed Law 25/2005, venture capital entities have to restrict their investment activities to acquiring temporary interests in the capital of enterprises other than real estate or financial enterprises which, when the interest is acquired are not listed on a primary stock market or on any other equivalent regulated market in the European Union or of the in any other OECD member participants, whereas, as mentioned above, closed-ended type collective investment entities can invest in "all types of assets, financial or otherwise".
At December 31, 2022, there were 40 SICCs and 56 FICC entered on the CNMV’s Administrative Register.
Law 22/2014 also regulates three new types of entities:
- European venture capital funds ("EVCF"), subject to the rules in Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013, on European venture funds. They must be registered in the register set up for them at the CNMV.
- European social entrepreneurship funds ("ESEF"), subject to the rules contained in Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds. They must be entered in the register set up for them at the CNMV.
- It creates a special type of SME venture capital entity, an "ECR-Pyme", taking the form of either SME venture capital companies (SCR-Pyme) and SME venture capital funds (FCR-Pyme) (art. 20 Law 22/2014). These must hold, at least, 75% of their computable assets in certain financial instruments providing funding to small and medium-sized enterprises meeting a number of requirements at the time of the investment.
Therefore, Law 22/2014 regulates the legal regime of such entities as well as marketing regime of their shares or units in Spain and abroad.
2.6.2 Management companies of Closed-ended type Collective Investment Entities
Collective investment entity management companies are Spanish corporations (Sociedades Anónimas) whose corporate purpose is to manage the investments of one or more venture capital entities and/or closed-ended type collective investment entities, and monitor and manage their risks. Each venture capital entity and closed-ended type collective investment entity will have only one manager which must be a collective investment entity management company. Venture capital companies and closed-ended type collective investment companies can act as their own management company ("self-managed companies").
A description has been provided of the activities that can be carried on by collective investment entity management companies (there are some specific provisions in relation to self-managed companies and certain restrictions have been imposed), and a distinction is drawn between:
- Primary activity: Investment portfolio management and risk monitoring and management with respect to the entities they manage (venture capital entity, closed-ended type collective investment entities, European venture capital funds or European social entrepreneurship funds).
- Additional activities: Administrative and marketing tasks and activities related to the entity’s assets.
- Ancillary services: Discretionary investment portfolio management, advisory services on investment, safe-keeping and administration of the units and shares of venture capital entities and closed-ended type collective investment entities (and, if applicable, European venture capital funds and European social entrepreneurship funds) and receipt and transmission of orders of customers in relation to one or more financial instruments.
A strict regime for obtaining the CNMV’s authorization is established. Additionally, the CMNV must be notified of any significant change to the circumstances in which the original authorization was granted.
18 As amended by Law 6/2023 of 17 March on the Securities Markets and Investment Services
19 In the case of the SCR and the SICC, the company itself can act as management company, if its managing body decides not to designate an external manager. These "self-managed" SCRs and SICCs are subject to the regime set out in Law 22/2014 for SGEICs, on which further information is provided in point 2.6.2 below.