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Qualified Investor Funds (QIF) are special types of investment funds that allow professional and experienced investors to invest in diversified portfolios. This type of investment funds is used only in the Czech Republic (Fondy kvalifikovaných investorů), and it is similar to the Luxembourgian Specialized Investment Fund (SIF). Qualified investor funds are part of the group of alternative funds and are noted for their high flexibility in investment structuring (a choice of an investment vehicle and investment assets) and in the fund management rules. Compared to other, standard investment funds, the most prominent features are that qualified investor funds offer 0 % capital gain tax to individual investors who invest for more than three years and that these funds can be tailored for specific type of investment projects and specific investors. Minimum investment into this type of fund is 1 000 000 CZK, an equivalent of 40 000 EUR. Qualified investor funds are primarily used to invest in debt instruments, equities, real estate, and alternative investments, such as art or private equity.

Definition of a qualified investor

→A private individual or legal entity that invests more than 125 000 EUR (or CZK equivalent) into qualified investor funds. It does not have to be only one specific fund; it can be a combination of more QIFs.

→A private individual or legal entity that invests at least 1 000 000 CZK into QIF and passes the verification of suitability through an investment questionnaire, where the investor (representative of a legal entity) proves whether he/she has sufficient financial background and expertise for the investment.

→Professional customer

-Eligible counterparties – banks, insurance companies, pension companies, investment funds, investment companies, and other entities which operate their business activities in the financial market based on an authorization granted by the financial market supervisory authority.

-Legal entities - automatically classified as professional customers if they meet at least two out three following criteria:

a) assets equivalent of at least 20 000 000 EUR,

b) net annual turnover equivalent of at least 40 000 000 EUR,

c) equity equivalent of at least 2 000 000 EUR

-Private individuals and legal entities that do not meet criteria in previous point may become professional customers on request if they meet at least two out of three following criteria:

a) the size of the Applicant's financial portfolio (including funds and investment instruments with banks and other financial institutions, except for real estate) corresponds at least to 500 000.00 EUR,

b) during the past four consecutive quarters, it has effected, on the relevant regulated market or in a multilateral trading facility, transactions with the investment instrument to which the application pertains in a significant volume and with an average number of at least 10 transactions per quarter

c) the person authorized to give Orders for the Applicant works or has worked for a period of at least one year in a professional position in the financial sector requiring knowledge of the transactions or services to which the application pertains.

Most common forms of QIFs

The most commonly used form for qualified investor funds in the Czech Republic is SICAV (Societe d'Investissement A Capital Variable), an investment company with variable capital. SICAV structure can be used only for investment funds, because it is not suitable for any other company forms. The main advantage of SICAV is that it can create any number of sub-funds which may focus on different investment strategies and investments to different asset classes. For this reason, SICAV issues two different types of shares - founder shares and investment shares.

Mutual fund structure is also often used, which is used for the establishment of QIFs. Mutual funds do not have legal subjectivity, which means that the ownership right to the assets in the mutual fund belongs jointly to all unit-holders in proportion to the value of the units they own.

Qualified investor funds may also be formed as a joint-stock company, limited liabilities company, or trust.

Taxation of returns from QIFs

Taxation benefits for investors are a significant advantage of QIFs. The fund itself has to pay only 5 % corporate tax from its returns, compared to normal 19% corporate tax in the Czech Republic. Furthermore, private individuals who invest for a time period longer than three years are exempt from income tax completely. The current level of income tax in the Czech Republic is 15 %.

Significant QIFs in the Czech Republic

Sirius Investments Reserva – sub-fund of Sirius Investments SICAV that focuses on investing in debt instruments such as P2P loans, bridge loans, short term loans, and other alternative debt instruments. Their current targeted yield is 5 % p.a. and they have 2,4 billion CZK in assets under management.

QUANT – sub-fund of Robo Asset Management SICAV invest mainly into us equities through exchange-traded funds (ETFs) according to their proprietary quantitative model. The main purpose of the model is to identify whether equities are overvalued or undervalues. If they are undervalued, most of the portfolio ins invested into equities, and only a small portion is being kept on bank deposits, while when equities are overvalued, most of the portfolio is saved in banks and ready for the right time to invest into equities again. Targeted return is 5 % p.a. and the current volume of assets under management is 500 million CZK.

Retail subfund and Office subfund – two sub-funds of Wood&Company SICAV that are leading commercial real estate funds in the Czech Republic and Slovakia. Targeted return of these two funds is around 10 % p.a., but during 2018 were outperforming. Retail subfund generated 17,5 % and Office subfund generated 14,9 %. Retail subfund focuses on investments in shopping centers. Currently, they own Harfa, a large shopping center next to the O2 arena in Prague 9 and Krakov shopping center in Prague 8. Even though they have only two assets in the portfolio, their valuation (RICS) is 206 million EUR, with loan to value of 54 %. Office subfund is focusing on investment into office buildings in the Czech Republic and Slovakia. Currently, they own five office building with total rentable area of 128 000 square meters. Their current valuation (RICS) is 260 mil EUR, with loan to value of 63 %. Both of these funds won prize for the best qualified investor funds in 2018. Retail subfund claimed first place and Office subfund second place.

Managers and administrators of QIFs

Each investment fund needs a manager and administrator in order to operate. The fund manager is responsible for creating investment strategies, selection of new investments into the portfolio and execution of trades. The administrator serves in the role of back-office, because they are responsible for issuing new shares for new investors, prepare financial statements, and manage evidence of investors. Both of these functions have to be executed by an investment company (IC) that is competent to provide these services. Very often, only one IC serves as administrator and manager for QIF. In the Czech Republic, AMISTA and AVANT are two most significant companies that focus on the establishment and subsequent management and administration of qualified investor funds.

AMISTA is currently providing services to 67 investment funds and sub-funds, with total assets of 57 billion CZK. From these funds, they provide administration to 60 funds. They manage 48 with total assets under management od 29 billion CZK, and other investment companies manage the rest.

AVANT has a portfolio of 105 funds and sub-funds with total assets of 45 billion CZK. In total, they manage 61 different funds, mostly real estate funds and funds of alternatives investments. They are also providing administration, but they don't provide information on how many funds are using this service. As qualified investor funds allow to invest even info product that might be difficult to revalue, AVANT is managing fund called TREBITSCH which invest into companies producing whisky and all investment into the fund are being secured by real bottles of whisky.