Operational analysis for establishment of investment fund

Abstract

The transition of Armenia from centralized to market economy requires complete reorganization of ownership structure in state-owned enterprises. The Privatization program is aiming to fulfill this objective via distribution of voucher to all citizens of Armenia. Vouchers will allow public to participate in ownership of enterprises, organized as an open joint-stock companies. To facilitate and make more effective the use of the vouchers by their owners the Investment Fund should be established. The latter will create a market for the privatization certificates and lower the risk for their owners. Based on these considerations, there is a need for the investment Fund in Armenia. The objective of the project group was to develop operational analysis for establishment of the Investment Fund that would be adjusted to the current situation in Armenia and consistent with the existing legislation on investment Funds. The main problem that project group was faced is the non-existence of such kind institutions in Armenia. To overcome that problem, the project group decided to pursue research in following areas: the best practices of the foreign countries’ Funds, the legislation on the Investment Funds in Armenia, the situation in privatization process, the degree of awareness about the Investment Fund and citizens’ attitudes toward them. After data collection and analysis, the group came up to the following conclusions: • The idea of establishment of the Investment Fund in Armenia is feasible. • The most suitable structure of Investment Fund in Armenia is the closed-end type of Fund, organized as an open joint-stock company. • Current legislation on the Investment Fund includes several restrictions that makes the establishment of the Investment Fund less attractive for founders. • The wide range of population is unaware about the purpose, activities and benefits of the Investment Fund. The lack of information lead public to mistrust in the Investment Fund. • Lack of liquid securities market limits the scope of activities of the Investment Funds. Based on these conclusions, the project group came up with the fooling recommendations: • The most suitable structure of the Investment Fund consists of four different entities: • Investment Fund , Management Company, Depository, and Audit with their own rights and responsibilities. Investment Fund is a central entity and recipient of services provided by other three entities. • The optimal size of financial portfolio (equity capital), calculated on the base of survey results and financial statements analysis, is $791,550. • The Investment Fund functioning and operating scheme was proposed, that specifies functions of the Investment Fund, Management Company, and Depository in securities’ transactions in the market. • Amendments to the legislation in force were suggested.