Venture capital, a driving force behind the growth of innovative enterprises, relies heavily on the expertise and diligence of fund managers. The Capital Markets (Registered Venture Capital Companies) Regulations 2007, sets a robust framework outlining the approval process, obligations, and transitions related to fund managers within registered venture capital companies.
In this article, we’ll explore the key aspects of these regulations and their significance in shaping the venture capital landscape in Kenya.
Approval of Fund Manager (Regulation 9):
One of the foundational principles of effective venture capital management is ensuring that qualified individuals oversee the funds.
Regulation 9 emphasizes that no person can act as a fund manager for a registered venture capital company or any of its funds without obtaining prior approval from the Authority. This stringent requirement underscores the need for experienced and capable individuals to steer the course of venture capital investments.
Obligations of the Fund Manager (Regulation 10):
The responsibilities of a fund manager extend beyond mere approval. Regulation 10 outlines specific obligations that fund managers must adhere to, irrespective of the terms set in the management agreement. These obligations include:
- Prudent Investment Policy: Ensuring that a prudent investment policy is in place for each fund, establishing a strategic framework for investment decisions.
- Compliance and Notification: Verifying that all fund investments align with the disclosed investment policy and comply with the Capital Markets Act and associated regulations. Additionally, the fund manager is obligated to promptly notify the Authority, within 24 hours, of any event resulting in less than seventy-five percent of investable funds being allocated to eligible venture capital enterprises.
Resignation of the Fund Manager (Regulation 11):
In the dynamic field of venture capital, changes in leadership are not uncommon. Regulation 11 provides a structured process for the resignation of a fund manager. A written notice must be submitted to the board of directors of the registered venture capital company, with a copy sent to the Authority. The notice period is typically one month, or as specified in the management agreement.
Removal of Fund Manager (Regulation 12):
The removal of a fund manager can occur under two circumstances: immediate removal upon the suspension or revocation of its license by the Authority, or removal by one month’s notice, or a longer period stipulated in the management agreement, initiated by the board of directors of the registered venture capital company.
Hand-over to New Fund Manager (Regulation 13):
In the event of resignation or removal, a seamless transition is vital for the continued effective management of venture capital funds. Regulation 13 mandates that the outgoing fund manager delivers all relevant information and documents to the registered venture capital company and the Authority within fourteen days. This comprehensive handover includes details of funds, investment portfolios, transaction records, and other critical documents.
Appointment of New Fund Manager (Regulation 14):
Ensuring continuity in fund management, the board of directors is tasked with appointing a new fund manager within one month of the resignation or removal of the previous manager. Within seventy-two hours of the appointment, the board must furnish the Authority with a certified copy of the new fund manager’s letter of consent and provide a copy of the management agreement.
In conclusion, the regulations set forth by the CMA play a pivotal role in shaping the responsible and effective management of venture capital funds in Kenya. By defining the approval process, outlining obligations, and providing a structured approach to transitions, these regulations contribute to the stability and integrity of the venture capital ecosystem in the country. As Kenya continues to be a hub for venture capital activities, these guidelines ensure that the industry operates with transparency, accountability, and a commitment to fostering innovation and growth in the business landscape.
