What are SICCs and FICCs?
Following the articles we have published on other collective investment institutions such as Free Investment Companies and their tax benefits, as well as the monograph we published on the main vehicles for real estate investment in Spain, this time we are going to focus on closed-end collective investment entities other than venture capital firms, also known as EICCs.
In particular, closed-end collective investment undertakings (other than venture capital undertakings) are collective investment undertakings which, without a commercial or industrial objective, raise capital from a range of investors through a marketing activity for investment in all types of financial or non-financial assets according to a defined investment policy.
They offer an attractive alternative for investors seeking diversification and access to less liquid assets. However, it is crucial that potential investors understand the structure, risks and liquidity implications associated with these funds. Proper regulation and professional management are essential elements that can help mitigate some of these risks.
What types of EICs exist?
These EICCs may take the form of (i) companies (SICCs), which have their own legal personality and may be self-managed or entrusted to a management company, or (ii) funds (FICCs), which do not have legal personality and must in any case be managed and represented by a management company, which exercises the powers of control without owning the fund.
As indicated at the beginning, EICCs are closed-end collective investment schemes in which, unlike open-end collective investment schemes, the number of investors or members is closed and there is no possibility of requesting repurchase of the investment, therefore, such investors or shareholders have to wait until the vehicle is dissolved or liquidated to recover what they have invested.
Like venture capital entities (ECRs), these investment vehicles are regulated by Law 22/2014 of 12 November 2014, which regulates venture capital firms, other closed-end collective investment undertakings and management companies of closed-end collective investment undertakings.
What differentiates EICCs from venture capital entities?
The main difference between EICCs (SICCs and FICCs) and venture capital entities (SCRs and FCRs) is the type of assets in which they can invest.
Venture capital entities are primarily designed to take temporary equity stakes in companies of a non-real estate or non-financial nature which at the time of taking a stake are not listed on the first market of stock exchanges or any other equivalent regulated market in the European Union or the rest of the OECD countries.
However, the investment object of EICCs is not limited to a particular type, so that they can invest in any type of financial or non-financial asset. In fact, it could be argued that they are, in terms of freedom in the asset object of investment, the equivalent of open-ended hedge funds and companies, but in this case of a closed-end type.
What are the requirements for EICCs?
Most of the requirements to be taken into account for this type of vehicle are those required by the Law 22/2014 for venture capital entities, but with the following particularities:
- These are entities that must be authorised by the CNMV prior to their incorporation and registered in a specific register for that entity.
- SICCs have to be incorporated in the form of public limited companies, by granting the corresponding deed to be registered in the Commercial Register.
- A deed of incorporation is not compulsory for FICCs, as it is optional under the law.
- Neither a FICC nor a SICC need to have a minimum number of unit-holders or shareholders respectively.
- Nor do any of them have to have a minimum equity or capital for their constitution, except in the case of self-managed SICCs, which must have a minimum share capital of 300,000 euros.
- Initial and subsequent contributions to the assets of the FICC may be made exclusively in cash.
- FICCs and SICCs may be marketed only to investors who are considered professional clients.
However, they may also be marketed to investors who (a) undertake to invest at least EUR 100,000 and declare in writing, in a document separate from the investment commitment contract, that they are aware of the risks associated with the intended commitment or (b) such investors make their investment on the personalised recommendation of an intermediary providing the advisory service, provided that, in the case of financial assets not exceeding 500,000 EUR , the investment is at least 10 ,000 EUR, and is held, and does not represent more than 10 % of such assets .
- Finally, in the case of closed-end IICs, without prejudice to the need to calculate the net asset value at least annually or after each capital increase or reduction, investors do not have to be offered exit windows, as they will have to wait for the divestment in accordance with the time limit indicated in the vehicle’s articles of association or management regulations.
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