Investment funds. Switzerland. Luxembourg. Raising investment through bank investment funds. Alternative to IPO

European investment funds make it possible to combine the capital of several investors and use it for real estate, securities, private companies and other investment plans. The choice of fund jurisdiction determines the circle of investors, management procedure, business bank account and support cost. For the project owner, professional preparation of the structure helps to move faster from the fund idea to raising capital and investment transactions.

If neither directnor reverse IPO suits you, or you simply do not want to give unknown investors even a potential possibility to manage your business, the method of raising investments through a bank investment fund can be a way out of the situation. Depending on the specifics of your business, a bank is selected in Switzerland (not an EU member), in Luxembourg (EU member), or in another country.  

It is also possible to open an investment fund in the Caribbean region, list investment certificates on a local exchange and “publicly” raise capital into a “Caribbean investment fund”, which then, either directly, through a European fund or through a European company, invests the money in your business in the territory of the former USSR.

Why can a Caribbean investment fund be better? Investment funds in BVI, for example, are known for a fairly loyal attitude to the “Slavic source” of money, because they are not subject to EU Directives, unlike a European investment fund where the bank will impose certain requirements on the “investor” and the source of incoming money, especially if you are effectively the investor yourself and do not need “real” investors.

Because the fund is publicly listed on an exchange, there is no need to explain how you “met” the investors. This is the main advantage of a public placement of fund certificates compared with a private placement, even if it is organised in an offshore region. With a properly structured company or investment fund, determining the “Slavic” origin of money will be difficult both legally and in practice — you will look like a respectable European investor.

The basic scheme for working with an investment fund is as follows

What is a bank investment fund? How to use an investment fund to raise investments

First, there are two types of investment funds. The first is when the fund is a legal entity and, as a rule, receives a separate licence or permission for investment activity. The second type is a fund without creating a legal entity, usually a bank investment fund or a fund opened by a management company (for example, a unit investment fund in the former USSR). In practice, this is a business bank account with a special regime for operation, management and use of funds. The whole procedure is described in a separate document — the fund regulations.

Europe also has a service called private banking. In practice it is similar, but the difference is that for private banking you sign an agreement directly with the bank and transfer funds to an ordinary investment business bank account belonging to you, rather than to the account of a bank investment fund managed by the bank in the interests of investors.

When using private banking, you effectively give the bank the right to choose where to invest your funds. However, it is possible to give more specific instructions on investment directions, including a particular bank investment fund or funds specified by you.

In this case, the balance sheet of the bank investment fund will contain both investors’ funds and the bank’s funds invested in the fund under the private banking programme. Similar information will be shown in the statement of the bank investment fund. Private banking gives an additional advantage to investors who, for certain reasons, do not want to openly disclose their participation, or the participation of their company, in a bank investment fund that will invest in the countries of the former USSR.

When presenting the balance sheet of a European company to shareholders, or even worse to a rating agency, a bank deposit under private banking with a first-class bank will look much better than a balance sheet showing a risky investment in an investment fund whose regulations provide for investment in the former USSR.

Thus, a bank acting in the interests of a private banking client can independently withdraw the deposit from an investment fund if market conditions deteriorate, because responsibility for monitoring changes under a private banking arrangement is placed on a bank employee. If the investor invests directly in a bank fund, the bank only performs the function of a technical partner and waits for the client’s instructions on further decisions.

The difference is also in profitability: direct investments can be more profitable than private banking, but they are also more risky because the investor must make decisions independently. With private banking, the bank does this, naturally for an additional fee.

The scheme for working with a European bank investment fund is as follows

In the scheme, the movement of funds within the Eurozone is shown in yellow. On the one hand, this increases the cost of organising and maintaining the scheme, but at the same time provides many more opportunities, including work with real European investors and venture investment funds whose regulations do not allow direct investments in the countries of the former USSR, which are generally treated as higher-risk areas. As one American banker known to us put it, they are “Candidates for Bad”, not even “Average”; on a five-point scale they would receive a score of 2.

By creating an instrument that is “convenient” for Western investors, you significantly expand the possibilities of raising investment capital for your business. At the same time, the fund usually receives the rating of the parent bank if certain conditions are met: there should be an intermediate investment company between the former USSR and the fund, otherwise the fund rating may be lower than the bank’s and management of such a fund may not always be acceptable to the bank itself.

The more complex version of the scheme described above is intended for medium and large business, where not only bringing one’s own money into the business matters, but also the company’s image, the possibility of attracting real Western investors, the prospect of an IPO and the image of a public European company.

An additional advantage of a bank investment fund can be protection of company assets against hostile takeover. A raider is unlikely to decide to “take” assets from a European bank: the resources of the parties are clearly different, and the bank will always find a way to deal with problems concerning its assets and “seizers”. By involving a European bank in the investment process, you receive not only an instrument but also a business partner and an additional factor of stable work, regardless of political and other changes in your country.