Bangladesh Securities and Exchange Commission (BSEC) by a notification on June 22, 2015 introduced the regulation. Previously there was no regulation regarding Private Equity and Venture Capital financing in Bangladesh. The rules called Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015 (the Rules) became effective from June 22, 2015.
The rules cover private equity fund and venture capital fund which will be operated by a fund manager through a registered trust. The fund manager and the trustee must be registered with the BSEC.
The fund managers will raise capital from eligible investors, who may be institutions, high-net-worth individuals and foreign fund managers. The funds cannot be raised through public issue or initial public offering; it can be raised only through private placement and it will not be listed or traded on the stock exchanges like other mutual funds.
According to the rules, venture capital fund could be invested primarily in non-listed equity and equity-linked securities of start-ups with less than two years’ of operational history or green field companies or emerging early-stage undertakings mainly involved in new products, services, technologies or intellectual property rights based activities or new business models.
A local fund management company needs to have paid up capital of at least Tk. 50 million to become operative. For a fully-owned subsidiary fund management company, it needs to have a paid up capital of at least Tk. 150 million, and for a partially-owned subsidiary foreign firm, the paid up capital will be at least Tk. 100 million.
The applicant firm must have minimum net worth of 75% of its total paid up capital provided that if the net-worth of a fund manager, at any time, goes down below 75% of its total paid-up capital, it needs to increase it up to the required level within the next accounting year.
A chief executive officer or a chief investment officer and a compliance officer of the firm each must have a relevant academic background and at least seven years of relevant professional experience, and neither the applicant, nor any of its directors will be a loan defaulter.
The registration fee is Tk. 1 lakh and the annual fee is Tk. 50,000.
The fund manager shall be entitled to an annual fund management fee up to 4% (four percent) of NAV (net asset value) of the fund for managing an impact fund, up to 3% (three percent) of NAV of the fund for managing a venture capital fund and up to 2% (two percent) of NAV of the fund for managing a private equity fund.
The fund manager may share up to 20% of the net annual profit of a fund.
About criteria on formation of an alternative investment fund, such fund size will be minimum Tk. 100 million and subscription by the sponsor is not less than 10% of the fund provided that the sponsor will subscribe at least 20% of its total subscription to the fund before registration of the fund.
Minimum investment by the fund manager must be at least 2% of the fund size provided that, if the fund manager also acts as sponsor of a fund, this investment shall be made in addition to its investment as the sponsor of the fund.
Along with its connected persons, the fund manager must not hold more than 25% of the units of a fund at any point of time. The sponsor must maintain a continuous investment of not less than 2.5% of the fund size.
This fund will declare, to the unit holders, cash dividends only and will be locked in for a period of 3 years from the date of issuance of units.