The Investment Funds Market In Mexico - Finance and Banking - Mexico Law Articles in English - Mondaq Business Briefing - Books and Journals - VLEX 631497314

The Investment Funds Market In Mexico

Author:Mr Miguel A. Peralta and Pedro Said Nader
Profession:Basham, Ringe y Correa, S.C.
 
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  1. MARKET OVERVIEW

    Before the financial reform of 2014, the investment funds market in Mexico was growing steadily. However, the reform, and the subsequent passing of the new Investment Funds Law(IF Law) in early 2015, resulted in a greater projected growth, in part due to Mexican investment funds being bound to comply with more obligations and subjected to further scrutiny from the National Banking and Securities Commission (CNBV). For many years, investment funds in Mexico were called "investment corporations" (mutual funds), however, as a result of the financial reform, in January 2014, the investment corporations were formally renamed "investment funds" (however, they are essentially the same).

    Under the IF Law, investment funds lack a shareholders' meeting, board of directors and statutory officer. Instead, the managerial responsibilities are held by the investment manager company. Another key change brought by the IF Law is the flexibility for investment funds to sub-divide or spin-off, subject to special conditions, in the event that the financial markets exhibit disorganised or volatile traits, or when the characteristics of the investment assets have liquidity or valuation issues. Further, investment funds, as well as their representative shares, must be registered with the National Security Registry (the Securities Registry) in order to provide investor access to information about the funds in which they are investing. Notwithstanding the above, the primary purpose of the IF Law was to have investment funds (and their investment managing companies) become more transparent to the general public, in order to attract more potential investors.

    In the Mexican investment funds market, there are four types of investment funds recognised by the IF Law:

    Variable rent investment funds. Debt instrument investment funds. Private equity investment funds. Limited purpose investment funds. While not defined under applicable law, hedge funds are a sub-category of the variable rent investment funds.

    By law, all investment funds must be incorporated as limited liability stock corporations with variable capital. The fixed portion of the capital stock of these entities can only be subscribed by the funding partner of the investment fund, which must always be the investment manager company of the fund. The variable portion of the capital stock of investment funds is free to subscribe, meaning any individual or entity may subscribe stock in the fund, subject to any specific limitations set out in the articles of incorporation. It should be noted that financial institutions can subscribe stock in investment funds, but always by acting as trustee on behalf of individuals or entities.

    According to information compiled by the Mexican Association of Financial Intermediaries (AMIB), during the first semester of 2015, the total amount of cash managed by Mexican investment funds totalled MXP$1.9 trillion, which marked an annual increase of 8.7%. While these numbers did not reach the MXP$2 trillion mark expected by sector experts, it still marked an important growth. According to the AMIB, the collective estate of Mexican investment funds represents 11% of Mexico's internal gross product.

  2. ALTERNATIVE INVESTMENT FUNDS

    2.1 Common structures

    Mexican law provides that all investment funds must be incorporated as limited liability stock corporations with variable capital. Limited liability stock corporations operate under a company name and are formed exclusively by stockholders whose liability is limited to paying for their shares as capital contributions. To the same extent, investment managing companies must also be forcibly incorporated as limited liability stock corporations. The fixed portion of the capital stock of the investment funds must be exclusively held by the investment managing companies, while the variable portion of the fixed capital can be held by any individual or entity. Moreover, the shares representative of the variable portion can be issued in as many different series as the investment management company considers necessary, which each series of shares giving different rights and obligations to their holders.

    As limited liability stock corporations, investment funds and investment managing companies are bound by the terms of the General Law of Corporations (Corporations Law), as well as to certain specific requirements set out by both the IF Law and the CNBV. General requirements for limited liability stock corporations, applicable to investment funds and investment managing companies, as set out by the Corporations Law, include:

    Legal name and corporate domicile of the company. Corporate purpose of the entity. Duration of the company. Total amount of the capital stock. In this regard, the above requirements will need to form part of the corporate byelaws of the investment funds and investment managing companies.

    Additionally, the investment funds and investment managing companies, pursuant to the Corporations Law must keep a:

    Shareholder registry book. Capital variations book. The shareholder registry book must contain: The name, nationality, domicile and tax payer identification number of all shareholders. The number of shares held by each shareholder,...

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