Funds and Fund Managers
Investment Funds
An investment fund is a collective investment scheme, a pool of money managed by a professional for the benefit of its investors. Investment funds allow individuals to invest even with modest savings, making it easier for individuals to participate in the financial markets. The pooled money in the funds is managed by experienced professionals in fund management company, who research and select investments according to the fund's objectives. These objectives can range from conservative (seeking income and capital preservation) to aggressive (aiming for high growth potential with higher risk).
Funds can invest in a variety of assets, such as stocks, bonds, real estate, or commodities. This diversification helps spread risk and potentially improve overall returns. An individual investor might not have the resources to achieve such diversification on their own.
Armenian legislation provides legal basis for various types of investment funds, each with its own structure, legal status and distinct investment strategy. Here are common types:
- Retail Funds: Open-ended investment funds that continuously offer new shares and redeem existing ones. They typically cater to a broad range of investors with varying risk tolerances.
- Pension funds: Open-ended investment funds that manage future pensioners’ contributions to provide their retirement income.
- Exchange-Traded Funds (ETFs): Similar to mutual funds, but their shares trade on stock exchanges like individual stocks.
- Hedge Funds: Often accommodate accredited investors (wealthy individuals, professionals, or institutions) and employ more complex investment strategies with potentially higher risks and rewards.
- Private Equity Funds: Invest directly in private companies, typically not listed on stock exchanges. They aim to generate returns by helping these companies grow and eventually selling their ownership stake at a profit.
CBA’s regulation is risk based andmight differ based on the type of fund (e.g., retail, public funds vs. non-public funds, hedge funds, private equity, etc)..
Since financial markets are global our regulatory cooperation between countries helps ensure effective oversight and prevents regulatory arbitrage, i.e. exploiting loopholes in different systems.
Investment Fund Managers
An investment fund manager is a company registered and licensed by the CBA, that manages the assets of an investment fund.
With additional permission, an investment fund manager may also manage mandatory or voluntary pension funds.
With appropriate permission from the Central Bank, an investment fund manager may also provide the following additional services:
- Provision of investment advice
- Custody of investment fund shares and stocks
- Management of securities portfolios
Market access
CBA regulations help prevent fraudulent or misleading practices that could harm investors. Also, by setting entry requirements, we can assess the financial credibility, soundness and competence of fund managers, especially when they are to manage the pension savings of Armenia’s contributors. Regulations also require fund managers to provide investors with broad and accurate information about the funds they manage.
Investment Fund Manager Licensing Requirements:
- Register as a legal entity with the Central Bank in the form of a joint-stock company or limited liability company.
- Meet the Central Bank's requirements regarding premises and technical equipment.
- Make available the statutory capital into an account opened with a bank within Armenia that is not affiliated with the manager.
- Obtain prior approval from the Central Bank for acquiring significant participation.
- Have a business plan for the next three years.
- Pay the annual state duty.
Activity regulation and supervision
CBA sets requirements for the activity of fund managers to protect investors, maintain financial stability, ensure fair competition and securities market integrity. The rules help to avoid fraudulent activities and mismanagement by fund managers. The rules oblige to act in prudent manner, exploit fair practices and avoid any conflict of interest to the best interest of fund investors.
Exit from Market
The failure of a fund manager can have negative consequences for investors and the broader financial system. Regulations ensure that such failures are handled in a way that minimizes risks to all stakeholders and other market participants.
Legislation
- RA Law "On Investment funds" .
- RA Law "On Bankruptcy of Banks, Credit Organizations, Investment Companies, Investment Fund Managers, and Insurance Companies".
List of public and non-public Investment funds licensed by the Central Bank
List of Investment and pension fund managers licensed by the Central Bank