Iran - Rules for Private Equity Funds Approved

EghtesadOnline: Instructions and charter for private equity funds have been ratified, Iran's Securities and Exchange Organization’s deputy for supervision of financial institutions said.

News ID: ۷۴۶۲۱۸

13 November 2018

Speaking to SEO News Agency, Saeed Fallahpour said the organization finalized the regulations in consultation with prominent investors and experts.

Private equity funds have the option of investing in non-public companies. Accordingly, the regulations allow private equity funds to support public companies not yet listed on the stock market, companies listed on Iran Farabourse SME market and companies that have failed to meet the eligibility for listing, he said.

Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies or  engage in buyouts of public companies, resulting in the delisting of public equity, according to Financial Tribune.

Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and bolster and solidify a balance sheet.

A private equity fund has Limited Partners (LP), who typically own 99% of shares in a fund and have limited liability, and General Partners (GP), who own 1% of shares and have full liability. The latter are also responsible for executing the investment.

The minimum amount of investment for private equity funds has been set by SEO at 500 billion rials ($3.57 million). Investors can operate for a maximum of seven years in such funds, the first four years of which is determined as investment fund period.

Fallahpour elaborated that private equity funds are fundamentally different from regular investment funds at Tehran Stock Exchange. Framework and strategies of private equity funds lead to higher risks and hence applicants are required to fill out forms of risk acceptance after carefully reading the funds’ charter and letter of intent.

In addition, the minimum amount of investment for each investor in private equity funds is set at one billion rials ($7,143).

“Therefore, it can be said that the proper platform for investment in non-public companies as well as public companies is available,” he said adding that the instructions emphasize risk management by introducing obligations and restrictions.

Applications from those wanting to establish private equity funds are first investigated by the junior market Iran Farabourse Co. SEO issues the permit if they meet the requirements.

Fallahpour expressed the hope that in light of measures taken by SEO, the proper platform for financing enterprises in need of reforming financial and operational structure as well as creating new investment tools would be made available.