The Nigerian Securities and Exchange Commission (SEC) seeks to regulate Private Equity Funds “P.E Funds by designating P.E. Funds as Collective Investment Schemes under Rule 550 of the Consolidated Rules for SEC 2011 and Rules 249d of the SEC Proposed New Rule for Exposure November 2012. The Investment and Securities Act 2007 defines a Collective Investment Scheme as one that invites the public to invest. Since P.E Funds usually do not invite the public to invest, can the SEC legally exercise jurisdiction over the PE Funds without usurping the National Assembly’s law making role by amending the ISA 2007 definition of Collective Investment Schemes through its Rules? Whilst this issue is being resolved, P.E Funds should know their proposed Rule 249d obligations to the SEC.
To operate a P.E. Fund, the authorization of SEC must be secured and the Fund must be registered with the SEC. The minimum threshold to be registered as P.E. Fund is N1Billion investors’ funds and N20 million is the minimum paid up capital for the Fund Manager. The P.E. Fund is restricted from soliciting funds from the general public but should privately source funds from qualified institutional investors. P.E. Funds shall not also invest more than 30% of the Funds assets in a single investment thus allowing portfolio investment to avoid risk concentrations.
The Keynote delivered by HRH Barrister David Serena Dokubo Spiff set the tone for the discussions by pointing out that opportunities abound for lawyers in Bayelsa if only they will prepare for them. The panelists described their operations and identified various ways the lawyers could reap. Brass LNG for example described the project plans, Century Group pointed out how it employs lawyers in its operations. The ERA legal adviser, Prince Chima Williams emphasized the level of environmental degradation in the State and clarified that lawyers in the State must understand the environmental laws and international standards to compel adherence to them by the operators in the State.
The Information Memorandum (IM) which provides the investors with the necessary details of the P.E Fund shall be forwarded with the application for authorization and registration to the SEC. The P.E. Fund is also required to submit quarterly returns and annual accounts/report to SEC whilst a semi-annual report should be given to the investors. The quarterly returns to SEC should contain the total number of the investors, commitment received, commitment already drawn-down, current investment of the Fund, the current value of the assets of the Fund. The semi-annual reports to the investors should contain the total commitments, draw-down and distributions, changes to investment strategy, current and new investment.
Whilst the SEC justifies Rule 249d as being necessary to prevent P.E Funds from entering illegal operations as they take off in the Nigerian financial market, we also know that Rule 249d will give SEC long arm jurisdiction over private companies that P.E Funds invest in and private investors in the Funds. This is contrary to the “protector of the public” duty of the SEC. The SEC needs to comply with the ISA in attempting to exercise jurisdiction over new entities to safe guard the financial markets.
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