This blog post will take a look at some of the details of the direct PEF establishment in Austria, and their regulation. Direct investment involves investing directly in real assets or gaining control over a company (acquiring its controlling stake). Direct private equity funds are often created for these purposes. Shares or units of such funds are one of the financial instruments used to make a profit by their investors. When setting up a PEF in Austria the most frequently used legal form is LP, and this is logical as they are very convenient for tax optimization. LLCs and JSCs are also popular.
Private equity funds' partners in Austria are most often companies that have already got on their feet but lack the funds to move to a new level. On the other hand, the partners of PEFs are investors who contribute money to them. The main sources of funding PEFs are pension funds and insurance companies. Traditionally, these financial market operators are quite conservative and work mainly with government securities of the highest category.
However, to increase profitability, they allow themselves a small share of risky investments, for example, in private equity funds. The more positive examples (successful projects) can be demonstrated by private equity fund managers, the more willingly they will invest in them. At the same time, private equity funds are aimed at the implementation of fairly large projects at enterprises that are in the stage of business expansion.
LP registration in Austria
Typically, investors become limited partners in LP. In some structures, the general partner is managed by a partnership; in other structures, the partnership is managed by a separate management company, which is usually an LLC.
A legal entity only can be entrusted to manage a direct fund. It must be licensed or registered as an AIF manager. The LP can work as a company interacting with counterparties from the same prestigious jurisdictions (Great Britain, other EU countries, USA, Canada, etc.)
Requirements for setting up a PEF in Austria
The organizational and legal forms of Austrian PEFs must be registered in the Trade Register and have a legal address in the country. They are required by law to maintain accounting records. A corporate secretary is not required for all types of legal forms of PEFs. The financial institution can be either a bank or a securities service provider with a representative office in the EU.
Sell an Austrian AIF in the EU
In order to effectively channel the capital raised through the PEF for the long-term investment in the economy, the ELTIF Regulation was developed and introduced. Austrian AIFs that have received permission to operate ELTIF can register the AIF in the EU (or its branch) as ELTIF, provided they meet the authorization requirements. The main advantage of such registration is the ability to sell AIFs throughout the EU under the common European passport regime. In addition, ELTIF allows great opportunities for marketing to high net worth individuals throughout the EU.
Obtaining a financial license in Austria
Austrian AIFs usually need to obtain a license from the FMA. There is a de minimis exception for small AIF managers with assets of less than EUR 100 million or less than EUR 500 million. The managers of such small funds are subject to only a few rules of the Investment Funds Act. They only need to be authorized by the supervisory authority.
The AMF must have sufficient equity capital to cover 25% of its annual operating expenses.
To organize the activities of a direct PEF in Austria, we recommend that you first familiarize yourself with the legal framework of the country. It should be emphasized that direct funds in Austria can be regulated by the EU Fund Manager Regulation. For more information, you are welcome to sign up for a consultation on the PEF regulation in Austria from our specialists.