A hedge fund in Russia is a type of investment fund which is addressed to investors who want to run multiple investment strategies at the same time. The main purpose of a hedge fund is to conduct investment strategies which will allow the highest returns. Our team of company formation specialists in Russia can provide more details on how to set up a hedge fund.
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How to open a hedge fund in Russia?
The procedure to establish a hedge fund in Russia starts with setting up a legal entity such as a joint stock company acting as either the fund itself or the manager of the fund. In order to launch a Russian hedge fund, one needs to:
- choose the type of funds which are allowed according to Russian legislation;
- prepare the rules of the fund containing details about: the investment approach, risk assessment, and the rights of investors;
- appoint the management company, custodian, registrar;
- appoint an auditor that should hold appropriate licenses.
Setting up a hedge fund in Russia requires the approval of the rules of the fund by the Central Bank of Russia, whereafter the hedge fund may be officially established, securities sold to investors, and operations conducted.
What are the types of hedge funds in Russia?
Foreign investors can choose from two main types of hedge funds in Russia, as follows:
- closed-ended;
- interval.
The difference between the two types is given by the rights the investors have. In the case of an interval hedge fund, the management company is allowed to redeem the units at specific dates. In the situation of a closed-ended hedge fund, the right is given only when the trust management contract is expiring.
What is the name of the regulatory authority for hedge funds in Russia?
The key regulatory body for hedge funds in Russia is the Central Bank of the Russian Federation (CBR). The Central Bank of Russia serves as the key regulatory gatekeeper, authorizing fund registration and enforcing ongoing compliance and transparency standards. The key activities overseen by the CBR include:
- asset management companies;
- licensing;
- reporting;
- compliance.
In addition, it is responsible for keeping the official list of investment funds and управляющие компании (management companies). Since 2013, the CBR has functioned as a “mega-regulator” for all financial markets.
What is the legal framework of hedge funds in Russia?
Those who are interested in company formation in Russia should know that the hedge funds fall under the regulations applicable for retail funds, which in this case is the Federal Law on Investment Funds No. 156 –FZ.
An important aspect when setting up a hedge fund in Russia is that the vehicle does not have to be licensed on the local market in order to perform financial activities. Still, the investors will need to register with the Central Bank of Russia.
What tax issues affect hedge funds in Russia?
- Unit investment funds are tax transparent (no corporate income tax is levied at the fund level);
- Taxation occurs at the investor level upon the distribution or redemption of income;
- Personal income tax (13-15%) is levied upon tax residents in Russia;
- Withholding taxes apply to non-residents depending upon the treaty.
Are foreign investors allowed to invest in Russian hedge funds?
Foreign investors are allowed to invest in Russian hedge funds without much restrictions. However, the requirement to adhere to anti-money laundering and know your customer regulations has to be complied with. Currency control regulations might also be applicable while transferring money in and out of the country.
What are the investment restrictions for hedge funds in Russia?
The investment restrictions vary according to the type of funds (interval funds or closed-ended funds):
- Closed-ended funds allow more flexible strategies to be employed, such as real estate and private equity, and derivatives;
- Interval funds have more stringent requirements in terms of diversification and liquidity. Leverage and derivatives are permitted.
Is the hedge fund market increasing in Russia?
At the moment, the hedge fund market provides many investment opportunities to local and foreign businessmen. Hedge funds market in Russia is developing at a fast pace, as it registered very good results in 2015 and 2016. The increase observed in 2015 was eight times higher than in the case of other major economies of the world, such as China.
The solid increase for the investment market in Russia is strongly influenced by the prices imposed by the oil companies set up here.
What are the principal benefits of setting up a hedge fund in Russia?
- Growing and underdeveloped alternative investment market;
- Access to high-yielding sectors like: energy, natural resources, and technology;
- Flexibility in investment strategies, especially for closed-ended funds;
- Favorable tax regime for hedge funds.
Businessmen who need further information about opening a hedge fund are invited to contact our team of company formation consultants in Russia.