Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002)

Board Notices

Determination of Securities, Class of Securities, Assets or Classes of Assets that may be included in a portfolio of a Collective Investment Scheme in Securities and the manner in which and the limits and conditions subject to which Securities or Assets may be so included

Chapter lll : Fund of Funds Portfolio

10. Conditions and limits of inclusion
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The conditions and limits subject to which participatory interests in a portfolio may be included in a fund of funds, are as follows:

 

(a) The investment in participatory interests by a fund of funds must consist of participatory interests in at least two other portfolios, provided that the investment in any one portfolio may not exceed 75 percent of the market value of the fund of funds.

 

(b) The limit determined in sub-paragraph 10(a) may be exceeded only if the excess is due to appreciation or depreciation of the value of the underlying participatory interests constituting the portfolio, provided that a manager may not, for as long as the excess continues, purchase any further participatory interests.

 

(c) A fund of funds may invest in participatory interests issued by another fund of funds only if that fund of funds holds assets outside the Republic of at least 85 percent of the value of the fund of funds and where that fund of funds is not invested in another fund of funds or feeder fund.

 

(d) A fund of funds may invest in participatory interests issued by a feeder fund only if the feeder fund holds assets outside the Republic of at least 85 percent of the value of the feeder fund.

 

(e) If a manager is unable to comply with the provisions of sub-paragraph 10(c) and (d) through no fault of its own, the manager must, if the noncompliance is not rectified within 30 days of the date on which it becomes aware of the non-compliance, submit a detailed plan, setting out measures to rectify the position, to the registrar for consideration for approval.

 

(f) The investment objectives of a fund of funds must clearly specify the nature of the participatory interests comprising the portfolio.

 

(g) Where a manager of a fund of funds includes in a portfolio participatory interests of the portfolios of foreign collective investment schemes referred to in sub-paragraphs 10(a), (c) or (d) ("underlying portfolios"), the underlying portfolio must—
(i) have been approved in terms of section 65 of the Act, and be subject to an annual review by the manager to ensure that it continues to comply with the requirements of section 65; or
(ii) where the underlying portfolio has not been approved in terms of 65 of the Act, be subject to a due diligence investigation conducted by the manager, to the satisfaction of the trustee, to ascertain whether the portfolio would qualify for approval in terms of the conditions under section 65(1)(c) of the Act and that the portfolio is available for investment and is not otherwise prohibited in its domicile of registration.

 

(h) Where an underlying portfolio is managed, directly or by delegation, by the same manager as the manager of the portfolio investing in the underlying portfolio or by any other company with which the manager is linked by common management or control, or by a substantial direct or indirect holding, such manager or other company may not charge any form of manager's charge (including initial fees or redemption fees) on the underlying portfolio.

 

(i) Where a manager of a fund of funds includes participatory interests of a foreign feeder fund in the portfolio, such feeder fund may not have invested in another feeder fund or a fund of funds.

 

(j) For the purposes of this Chapter, the value of a participatory interest held by one portfolio in another must be calculated by reference to the lower of the repurchase price or the net asset value of the relevant participatory interest, at the close of business on the day before the day a repurchase price was calculated.

 

(k) To the extent that the assets in a portfolio are exposed to exchange rate risk, a manager may enter into financial transactions for the exclusive purpose of hedging such exchange rate risk subject to the conditions and limits stipulated in Chapter V, provided that the portfolio's investment policy provides for it to include financial instruments for the exclusive purpose of hedging exchange rate risks.

 

(I) A fund of funds may not consist solely of participatory interests in a money market portfolio.