So-called black collective investment
The legal regulation of collective investment was based on the fact the Collective Investment Act, similar to its predecessor, the Act on Investment Funds and Investment Companies, exclusively regulated the activities of investment funds and investment companies. The new amendment brings fundamental changes in this respect.

The act newly prohibits any activities consisting of collecting funds from the public for the purpose of joint investment thereof, unless this happens on the basis of a special public-legal permit, such as a permit for activities of investment funds or investment companies or, as the case may be, a permit for activities of banks, insurance companies or pension funds. The act however states that public offerings of securities under the conditions set forth by the Capital Market Trading Act do not constitute a breach of such prohibition. This regulation gives rise to many ambiguities. Primarily, it is not clear what is to be understood under the term “public” and to which entities the prohibition applies. These questions are particularly relevant for private risk capital funds, various real estate unions, German type funds and construction cooperatives.

2. Real estate funds
The existing legal regulation regulated funds investing in real estate or what is termed real estate companies, but it set the lowest investment of a single investor in such fund to be CZK 2 million. Therefore these funds could not be used for retail clients.

The amendment brings a fundamental change that on the one hand removes the requirement for the minimum amount of the investment and thus enables this type of investment to be offered to a broader circle of investors, which from the economic viewpoint implies a fundamental change for the real estate market. On the other hand, the amendment makes the rules for investing in these type of funds significantly stricter. It regulates real estate companies in detail, in particular the so-called expert committee whose task is to valuate real estate held by a fund, and it newly stipulates certain investment limits. In connection with the requirements of practical life, the new regulation gives rise to questions concerning the possibilities of the funds’ participation in development projects, in particular the possibility of acquiring real estate companies, credit financing of construction and risks arising therefrom.

3. Funds of qualified investors
So-called funds of qualified investors introduced by the amendment are a novelty in the field of collective investment. Only financial institutions and persons who sign a declaration stating they have experience with securities trading can invest in these funds. The minimum investment per investor amounts to CZK 1 million. These funds can have a single investor, but not more than one hundred investors.

The act does not stipulate any investment restrictions or limits for the funds of qualified investors. However it allows them tax advantages of collective investment funds (5% tax), thanks to which the qualified investors funds will most likely be used in all areas of business, in particular as risk capital funds or by developers or real estate administrators. In this respect, questions emerge concerning the extent of admissible investments of the funds such as, for example, whether the fund may invest in a production enterprise or whether such fund can be a real estate company.