The Capital Market Authority is preparing to introduce a directive that would enable investment and mutual funds to enter the country’s nascent securities market as capital market service providers. The ‘Collective Investment Schemes Directive’ proposes to allow domestic and foreign-owned funds to engage in the real estate business, among other key sectors.
Tabled for official consultations this week, the draft seeks to authorize the registration of public market funds, public mutual funds, public real estate investment funds, and alternative investment funds as service providers.
Collectively referred to as ‘investment schemes’, these funds must be registered as a private limited company, a share company, limited partnership, or “investment company recognized by the Authority” to operate, according to the draft.
The Authority is opting to subject the schemes to borrowing limits, with the draft setting the threshold at 20 percent of a scheme’s portfolio. Real estate investment funds, however, may be permitted to borrow up to 40 percent of their respective portfolios.
“Any scheme which holds or intends to hold greater than 20 percent of its net asset value in real estate, whether investment in income generating real estate or real estate development, shall be required to conduct, competence and valuation requirements, among other requirements,” it reads.
Real estate investment funds are required to invest at least 80 percent of net asset value in income generating real estate, according to the draft.
It also proposes to allow foreign investors to participate in the formation of investment schemes. Foreign funds will be required to present a letter of good standing from the regulator in the jurisdiction where the fund is licensed, reads the directive.
Officials hope to see investment schemes bolster the ranks of licensed capital market service providers, which thus far include a number of investment banks, investment advisors, and securities dealers.
In March, the Authority approved licenses for five businesses to operate as capital market service providers.
CBE Capital SC and Wegagen Capital Investment Bank SC acquired investment banking licenses, while HST Investment Advisory Services PLC and Equation Securities Investment Advisor PLC joined the expanding Ethiopian financial sector as investment advisors, and Ethio-Fidelity Securities SC nabbed the first securities dealer license.
