Egypt’s Financial Regulatory Authority (FRA) has approved significant amendments to regulations for investment funds, introducing new measures designed to increase flexibility and stimulate growth in the market. The changes, led by FRA Chairman Mohamed Farid, specifically target in-kind subscriptions, where investors contribute assets like real estate or shares instead of cash.
The new rules aim to help investors deploy non-cash assets more effectively, simplify exit mechanisms, and allow for financing by pledging fund units, aligning the regulatory framework with current market needs and broader financial development goals in the country.
Loosening Lock-Up Restrictions
One of the most impactful changes is the revision of the lock-up period for units received in exchange for in-kind contributions. Previously, investors were prohibited from selling 100% of their units for a two-year period from the date of issuance.
Under the new amendments, contributors are now only required to retain 51% of their investment fund units. This retention period lasts for two years or until the fund sells the contributed in-kind asset, whichever occurs first. This revision provides investors with significantly more liquidity and flexibility in managing their portfolios.
Facilitating New Transfer and Pledge Options
The updated regulations introduce new mechanisms for the transfer of ownership of retained units even during the lock-off period. Such transfers are permissible to approved entities, including banks, insurance companies, other investment funds, or legal entities with a proven track record in the fund’s area of activity. Any transfer requires approval from both the FRA and the fund’s unit holders’ group.
Furthermore, the FRA has confirmed that these retained units can now be pledged as collateral. This allows investors to leverage their holdings for financing purposes, as long as the pledge does not lead to a transfer of ownership to any party other than the pledgee during the retention period.
Guidelines for Asset Contributions
The amendments clarify the types of assets eligible for in-kind contributions, which can include registered real estate, listed shares, or unlisted shares. The regulations stipulate that these assets must fall within the fund’s permitted investment vehicles.
Crucially, contributions cannot involve companies that are under liquidation or have been declared bankrupt. For real estate assets, the property must be officially registered and free of legal disputes. This ensures the quality and stability of the assets being brought into investment fund portfolios.
About The Financial Regulatory Authority (FRA)
The Financial Regulatory Authority (FRA) is a public authority responsible for supervising and regulating non-banking financial markets and instruments in Egypt. This includes the capital market, futures exchanges, insurance activities, real estate financing, financial leasing, factoring, and securitization. The FRA works to ensure market stability and competitiveness while protecting the rights of stakeholders.
Source: Zawya
