Investment Funds 2024

Last Updated February 08, 2024

Poland

Law and Practice

Authors



LSW is a leading Polish law firm, having practised on the Polish market for over 20 years. LSW’s investment funds practice is well recognised both locally and internationally, working closely with distinguished international and foreign investment fund/private equity practices. The team advises the whole gamut of investment funds, including venture capital, buyout, real estate, infrastructure, distressed asset, and sovereign wealth, through the course of an investment fund’s existence. Our specialist teams advise on, among other things, fund formation, fundraising and M&A. LSW is renowned for advising international and foreign investment funds taking their first steps on the Polish market, as well as assisting Polish funds on creating international structures to approach foreign markets, and attracting foreign investors. The team has advised the following investment funds and/or their portfolio companies: Warburg Pincus, TPG Capital, Mid Europa Partners, Nuveen, GIC Private Limited, Paine Schwartz Partners, Pollen Street Capital, Brookfield Asset Management, Partners Group, Marlin Equity Partners, Davidson Kempner Capital Management, Abris Capital, Enterprise Investors, and many more.

Alternative Investment Funds (AIFs) conducting their activity as a collective investment institution whose object of activity, including activity as part of a separated sub-fund, is collecting assets from multiple investors in order to invest them in the interest of such investors in accordance with the specified investment policy, exist in Poland (other than a fund acting in compliance with the Community (EU) law governing the rules for collective investment in securities).

AIFs, in their current shape, have existed in Poland since 2016 – as a result of the implementation of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers, amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.

The legal basis for the existence of AIFs in Poland is the Investment Funds and the Management of Alternative Investment Funds Act of 27 May 2004 (the “AIF Act”).

The Polish AIF market is well developed, including through the activity of alternative investment companies (one of a few types of AIF), often chosen by investors recently. There are clear legal requirements for the establishment of AIFs, including regulations indicated in the AIF Act. Supervision under the AIF market is exercised by the Polish Financial Supervisory Authority (PFSA), which grants permissions for AIFs and their management parties in certain cases.

There are three types of AIFs in Poland:

  • specialised open-end investment fund (SOEIF);
  • closed-end investment fund (CEIF); and
  • alternative investment company (AIC).

SOEIF

The sole object of activity of a SOEIF is investing cash means raised through proposing the acquisition of participation units, in securities, money-market instruments and other property rights specified in the AIF Act.

Investors take up participation units in SOEIFs. The participation units of a SOEIF may not be transferred to third parties by a participant (investor). It is possible to limit the group of investors who can become participants of a SOEIF. Participation units of a SOEIF may be redeemed at the request of the participant.

A SOEIF is managed by a society – special entity with permission granted by the PFSA. The society of a SOEIF acts in the form of a joint stock company (commercial company). The society establishes the SOEIF, manages it and represents it in relations with third parties.

Details concerning the opening, existence and liquidation of SOEIFs are regulated in the AIF Act. A SOEIF has separate legal personality and it does not act in the form of a commercial company.

CEIF

A CEIF is an AIF in which investors take up investment certificates. The sole object of activity of a CEIF is investing cash means raised through proposing the acquisition of investment certificates, in securities, money-market instruments and other property rights specified in the AIF Act.

The investment certificates of CEIFs are transferable. Moreover, they may be admitted to trading on a regulated market or alternative trading system.

There is a limited possibility of exit through the redemption of investment certificates by CEIF. Such redemption is regulated and possible only on terms and conditions specified in the statutes of CEIFs.

A CEIF is managed by a society – special entity with permission granted by the PFSA. The society of a CEIF acts in the form of a joint stock company (commercial company). The society establishes the CEIF, manages it and represents it in relations with third parties.

Details concerning the opening, existence and liquidation of CEIFs are regulated in the AIF Act. A CEIF has a separate legal personality and does not act in the form of commercial company.

AIC

The sole object of activity of an AIC is collecting assets from multiple investors in order to invest them in the interest of such investors in accordance with the specified investment policy.

Investors take up shares in an AIC. The shares of an AIC are transferable; however, limitations in this scope may be introduced on the basis of the statutes of AICs. Moreover, a new regulation (effective 29 September 2023), requires the consent in writing of the AIC’s managing party for any transfer of shares in an AIC to an entity other than the investor of this AIC and the AIC’s managing party. The AIC’s managing party will refuse to consent if, after verification, the potential purchaser does not meet the conditions for recognition as a professional client. A transfer of an AIC’s shares performed without the consent of the AIC’s managing party is invalid. This limitation is not applied if at least 50% of rights to participate in the AIC are held by professional clients specified in the AIF Act (eg, AIC’s managing party, society of AIF, investment firm).

An AIC conducts its activity in the form of a commercial company. An AIC may carry out its activity in the form of:

  • a limited liability company, a joint stock company or a European company; or
  • a limited partnership or a limited joint stock partnership in which the sole general partner is a limited liability company, joint stock company or a European company.

Details concerning the opening, existence and liquidation of the commercial companies are regulated in the Polish Commercial Companies Code.

Each AIC should have a managing party. An AIC’s managing party may be exclusively:

  • in the case specified in the first point above – a company being an AIC and carrying out the activity as a party managing the AIC on an internal basis; or
  • in the case specified in the second point above – a company being a general partner in an AIC and carrying out the activity as a party managing the AIC on an external basis.

AIC

An AIC is established by its investors and managing party. The AIC and AIC’s managing party are registered in the register of entrepreneurs of the National Court Register. However, before the registration of an AIC in the National Court Register, the AIC’s managing party should be entered in the register of AIC managing parties maintained by the PFSA, or the PFSA should grant permission. Before the registration, the statutes and investment policy of the AIC should be adopted too.

The activity of the AIC’s managing party may be performed on the basis of an entry in the register of AIC managing parties, and therefore without the separate authorisation (licence) of the PFSA, if the total value of assets included in the investment portfolios of the AICs that the AIC’s managing party intends to manage or manages does not exceed the PLN equivalent of EUR100 million, and, where the ACI’s managing party manages only companies that do not use AIF financial leverage and in which participation rights can be redeemed after at least five years from the date of their acquisition, the equivalent of EUR500 million. Exceeding the above limits results in an obligation to obtain a licence granted by the PFSA. In order to obtain the licence, the AIC’s managing party should submit to the PFSA an application for authorisation to perform the activities of an AIC’s managing party.

The majority of managing parties in Poland use a simplified procedure, ie, the obligation of entry to the register but without a separate licence from the PFSA.

The whole process of registration of the AIC and its managing party usually takes several months.

SOEIF and CEIF

SOEIFs and CEIFs may be established exclusively by a society. The society is a management body of SOEIF and CEIF and conducts its activity in the form of a joint stock company. SOEIFs and CEIFs may be established exclusively by the society which obtained a permit to pursue the activity. Permission is granted by the PFSA.

SOEIFs and CEIFs should be registered in the register of investment funds. The register of investment funds is kept by the Circuit Court in Warsaw.

Investors of AIFs are not liable for the obligations of AIFs. This liability is borne by the AIF and the managing party of the AIF in certain cases.

AIFs have several obligations in the field of reporting. Each AIF should prepare its financial statement for each fiscal year pursuant to the Polish Accounting Act of 29 September 2004.

Moreover, SOEIFs should publish an information prospectus and annual and semi-annual financial statements on their websites. The information prospectus should especially contain: the fund’s articles; declaration of the audit firm on the compliance of the methods and rules for appraising the fund’s assets described in the information prospectus with the provisions on accounting of investment funds; and also on the completeness of such rules and their compliance with the investment policy adopted by the fund.

A CEIF which is not a public CEIF should make available to the fund’s participants, upon their demand, annual and semi-annual financial statements.

When transferring the participation units of a SOEIF, issuing investment certificates of a CEIF and marketing an AIC in the territory of Poland, the society, the AIC’s managing party pursuing activity on the basis of a permit should make the information available to the client of the AIF, enabling it to review the same before acquiring participation units, taking up investment certificates or acquiring or taking up participation rights of an AIC. Details of the information available to the client of the AIF are specified in the AIF Act, which covers especially:

  • business name (name), seat and address of the AIF;
  • business name (name), seat and address of the party that manages the AIF;
  • description of the object of activity of the AIF, including a description of its investment objectives and investment policy and investment strategy, in particular a description of the types of assets in which it may invest, the techniques it may employ, types of risk involved in the investment, and any investment restrictions;
  • description of the procedures by which the AIF may change its investment strategy or investment policy; and
  • description of the methods and rules of valuation of assets.

Another disclosure requirement is imposed on the society of the SOEIF and CEIF. The society shall, within four months from the end of the financial year, submit to the PFSA and funds participants, upon their request, the AIF’s annual statements drawn up separately for each SOEIF and CEIF in which it is a body. The AIF’s annual statement should contain especially:

  • balance sheet for a given financial year;
  • profits and loss account for a given financial year;
  • report on the alternative investment fund’s activity for a given financial year;
  • description of material changes in the information listed in the information for the client of an alternative investment fund that took place during the financial year; and
  • report from the audit of the annual financial statements of the AIF.

Various types of investors join AIFs; however, Polish regulations establish some limitations in the scope of access for retail investors. In recent times, the AIC has been considered the most popular type of AIF in Poland, particularly due to the more simplified procedure for opening this type of AIF and its continued existence, which is mostly regulated by the Polish Commercial Companies Code.

Legal structures used by alternative fund managers in Poland are regulated and indicated in the AIF Act and the Polish Commercial Companies Code.

As mentioned previously, SOEIFs and CEIFs may be established and managed exclusively by a society. The society conducts its activity in the form of a joint stock company.

An AIC is managed by the AIC’s managing party, which acts as a commercial company. The AIC’s managing party may act as a party managing the AIC on an internal basis (AIC is its own managing party) or as a party managing the AIC on an external basis (a separate company is the managing party of the AIC).

There are some limitations for retail investors in the scope of access to investment in AIFs. Pursuant to the new regulations (with effect from 29 September 2023), an investor in an AIC is an entity that has the right to participate (shares) in an AIC and meets the criteria of a professional client (with some exceptions). A natural person may be considered a professional client if the value of their contribution to the AIC is not less than the PLN equivalent of EUR60,000. This limitation is not applied if at least 50% of rights to participate in the AIC consist of professional clients specified in the AIF Act (eg, AIC’s managing party, society of AIF, investment firm).

Regulatory Regime for AIC and AIC’S Managing Party

The AIC’S managing party should obtain a licence from the PFSA or entry to the register kept by the PFSA. Entry to the register is sufficient (without a licence) if the total value of assets included in the investment portfolios of AICs that the AIC’s managing party intends to manage or manages does not exceed the PLN equivalent of EUR100 million, and, where the AIC’s managing party manages only companies that do not use AIF financial leverage and in which participation rights can be redeemed after at least five years from the date of their acquisition, the equivalent of EUR500 million.

The starting capital for pursuing the activity of:

  • the AIC’s managing party on an external basis shall amount to at least the equivalent of EUR125,000 denominated in PLN; and
  • the AIC’s managing party on an internal basis shall amount to at least the equivalent of EUR300,000 denominated in PLN.

Moreover, the AIC’s managing party shall notify the PFSA of any material changes to the shareholder structure.

Requirements in the scope of starting capital of an AIC’s managing party and notification about changes to the shareholder structure are not applied in reference to the AIC’s managing party, which is obliged only to obtain entry to the register (without separate permission from the PFSA).

The AIC’s managing party is obliged to notify the PFSA in written form of the intention to market the ASI on the territory of Poland.

Regulatory Regime for CEIF, SOEIF and Society (Managing Party of CEIF/SOEIF)

The following activities are required in order to establish a CEIF and SOEIF:

  • a society providing the investment fund with statutes;
  • conclusion by the society of a contract with a depositary for performing the function of an investment fund’s depository;
  • issue of a permit by the PFSA;
  • collection of payments to the investment fund in the amount specified in its statutes; and
  • entry of the investment fund in the register of investment funds.

There are some exceptions according to which a permit of the PSFA is not required in reference to establishment of the CEIF – especially in the case of offering an investment certificate within non-public offer.

Moreover, a society of CEIF and SOEIF is a licensed entity and should obtain its licence from the PFSA.

The starting capital of the society for carrying on activity shall be at least the equivalent of EUR125,000 denominated in PLN. If the society carries on the activity of managing portfolios including one or more financial instruments, the starting capital shall be increased to the equivalent of EUR730,000 denominated in PLN.

The initial capital of the society may come exclusively out of documented sources. The means for covering initial capital or acquiring shares may not come from a loan or credit.

The PFSA has some rights in the scope of control changes to the shareholder structure of the society. For example, a subject intending to acquire or take up shares or rights attached to shares in a society, directly or indirectly, in a number which ensures reaching or exceeding respectively 10%, 20%, one third or 50% of the total number of votes at a general meeting or a share in the initial capital, shall be obliged, on each occasion, to notify the PFSA of its intention to acquire or take up shares.

Investment Limitations

A CEIF may invest in certain types of assets specified in the law, including the following:

  • securities;
  • receivable debts, except for debts to natural persons;
  • shares in limited liability companies, including in companies with their seats abroad;
  • derivative instruments, including non-standardised derivative instruments;
  • property rights whose price depends directly or indirectly on things designated as to their kind, specific types of energy, meters and limits of the volume of production or emission of pollutants, admitted to trading on commodity exchanges; and
  • money-market instruments.

Indicated assets should be transferable. The CEIF may also invest in:

  • ownership or co-ownership of:
    1. land and immovable property within the meaning of the provisions on immovable property management;
    2. buildings and premises constituting separate immovable property;
    3. sea-going vessels; and
  • perpetual usufruct.

There are some limitations according to which a CEIF may not invest in certain assets amounting to more than a certain percentage of total value of the CEIF’s assets (rules of diversification). For example, the CEIF may invest only up to 50% of the value of its assets in participation units or investment certificates of one investment fund or in participation titles issued by one collective investment institution having its seat abroad.

Limitations in the scope of the list of assets which are subject to investment as well as rules of diversification are also established in reference to a SOEIF.

There are no specific investment limitations in reference to AICs; however, each AIC should have its own investment policy which determines the manner of investing its assets.

Foreign investment funds and their managing parties may conduct their activity in Poland as a rule. Specific requirements and limitations are described in the AIF Act.

For example, an AIF from the territory of the European Union (EU AIF) may be marketed in the territory of Poland if the PFSA receives from the competent supervisory authority from the other EU member state (appropriate to the managing party of the EU AIF) a notification on the intention to market such an EU AIF in the territory of Poland.

The rules of conduct of activity in the territory of Poland by foreign funds and management companies are specified in detail in the AIF Act.

If permission or entry to the register (as the case may be) is required in relation to an AIF or its managing party, this process typically lasts several months.

There are some regulations which apply to firms pre-marketing and marketing alternative funds in Poland, particularly:

  • the AIF Act;
  • the Polish Commercial Companies Code of 15 September 2000; and
  • the Act on public offering and conditions for introducing financial instruments to organised trading and on public companies of 29 July 2005.

These legal acts specify in detail the requirements to be met regarding pre-marketing and marketing alternative funds in Poland, including reporting requirements, the list of documentation to be prepared and supervisory powers of the PFSA.

These are described at 2.3.5 Rules Concerning Pre-marketing of Alternative Funds.

AIFs may be marketed to investors subject to the regulations that establish limitations to access to investment in AIF (including limited access for retail investors to investment in AICs).

There are some cases in which an AIF or its managing party should notify or obtain approval of the national regulator (PFSA) prior to the marketing of the AIF taking place. For example, the AIC’s managing party shall be obliged to notify the PFSA in written form of the intention to market an AIC on the territory of Poland.

Where a SOEIF intends to transfer participation units, a CEIF intends to offer investment certificates or an AIC’s managing party pursuing activity on the basis of a permit intends to market on the territory of a member state of the European Union an alternative investment company or an EU AIF which it manages, the society of AIF or the AIC’s managing party shall inform the PFSA about such intention in writing.

Moreover, if participation units of an AIF (eg, shares of an AIC) are offered in the form of public offer, then notification or approval of the PFSA may be required (especially in the case of a public offer with the obligation of the preparation of an issue prospectus or an information memorandum).

Firms which have marketed an alternative fund in Poland have several ongoing requirements including reporting requirements (specified in detail in 2.1.4 Disclosure Requirements).

If an AIC conducts its activity in the form of joint stock company or limited joint stock partnership and offers its shares within a public offer, then the AIC should notify the PFSA about this offer and the number of shares taken up by the investors (notification to the Share Registration System maintained by the PFSA).

Regulations regarding AIF put an emphasis on the protection of retail investors. Therefore, limited access to investment in AIC for retail investors is established (including the minimal amount of investment which would allow recognition of a retail investor as a professional client).

The processes applicable to AIFs (conducted by the PFSA – including entry to the register and granting a licence) are mostly written procedures which require preparation and submission of documents indicated in regulations. However, the PFSA openly allows face-to-face meetings in order to discuss various aspects of the procedure, for example concerning requirements remaining to be met.

The general and acceptable activity of an AIF is the collection of assets from multiple investors in order to invest them in the interest of such investors in accordance with a specified investment policy. Each AIF should invest taking into account a principle of diversification of assets. The specific requirements in the scope of diversification of assets result from provisions of law and internal regulations of the AIF, including the investment policy of the AIF.

The Depositary

An AIF should have a depositary holding the assets of AIF and keeping a register of all its assets, and also acting as a con – monitoring the activities performed by the AIF and its management in order to ensure that they carry out regulated activities in accordance with the law and internal regulations of the AIF. A depositary is not required in relation to an AIC whose managing party is only subject to entry in the register maintained by the PFSA.

A contract for fulfilling the function of an investment fund’s depository may be concluded exclusively with:

  • a domestic bank whose own funds amount to at least PLN100 million;
  • a branch of a credit institution with its seat in the territory of Poland, if the funds allocated for the disposal of that branch amount to at least PLN100 million; or
  • the National Depository of Securities.

This contract may also be concluded with an investment firm authorised to perform the acts in the scope of storing or recording financial instruments, provided that its founding capital amounts to at least the PLN equivalent of EUR750,000.

Register of the Fund’s Participants and Registration of Investment Certificates

A SOEIF should keep a register of the fund’s participants. Moreover, investment certificates of a CEIF should be registered in a depository for securities maintained in accordance with appropriate provisions.

Register of Shareholders

An AIC which conducts its activity in the form of a joint stock company or a limited joint stock partnership should have a register of shareholders in which all shareholders and shares held by them are recorded. The list of entities authorised to maintain a register of shareholders is limited to the specific professional institutions, including investment firms.

There are some limitations in the scope of accessibility to borrow funds as an established AIF. An AIC may not conclude a loan agreement or other agreement of a similar nature, or issue bonds or other securities that do not constitute participation rights of an AIC, if the person granting the loan or concluding another agreement of a similar nature or covering or purchasing the bonds or other security is a natural person. This limitation does not apply to a natural person considered a professional client pursuant to the regulations regarding AICs (this is a new regulation valid from 29 September 2023).

A CEIF may take out, only from domestic banks, credit institutions or foreign banks, loans and credits with a total amount not exceeding 75% of the value of the fund’s net assets at the time of concluding the loan or credit agreement. Granting loans by a CEIF is also limited – to a certain percentage value of the fund’s net assets. CEIF may also grant loans in securities to other entities.

A SOEIF may take out loans and credit, only from domestic banks or credit institutions, with a repayment period of up to one year, in a total amount not exceeding 10% of the value of the fund’s net assets at the time of concluding the loan or credit agreement.

As a general rule, income (revenue) of CEIFs and SEIFs, when applying investment rules and restrictions laid down for CEIFs, is exempt from corporate taxation, with certain exceptions. In particular, income from a share in foreign tax-transparent entities is subject to corporate tax, as well as income from certain transactions with such entities.

An AIC is generally subject to corporate tax with certain exemptions. Specifically, income (revenue) of an AIC obtained from the disposal of shares is exempt, provided that the AIC that disposes of shares has held directly, continuously for two years before the date of the disposal, not less than 5% of the shares in the capital of the company whose shares are being disposed of. An AIC may also apply a participation exemption for received dividends and interest on general terms provided in the law for all capital companies.

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As mentioned previously, there are some new regulations within the scope of AICs which limit the accessibility to invest in AIC by retail investors. These regulations have entered in force in 2023 and cover especially the following.

  • An investor in an AIC is an entity that has the right to participate (shares) in an AIC and meets the criteria of a professional client (with some exceptions). A natural person may be considered a professional client if the value of their contribution to the AIC is not less than the PLN equivalent of EUR60,000. This limitation is not applied if at least 50% of rights to participate in the AIC consist of professional clients specified in the AIF Act (eg, AIC’s managing party, society of AIF, investment firm).
  • A investor in an AIC should obtain consent in writing from the AIC’s managing party for any transfer of shares in an AIC to an entity other than the investor of this AIC and the AIC’s managing party. The AIC’s managing party will refuse to consent if, after verification, the potential purchaser does not meet the conditions for recognition as a professional client. This limitation is not applied if at least 50% of rights to participate in the AIC consist of professional clients specified in the AIF Act (eg, AIC’s managing party, society of AIF, investment firm).
  • An AIC may not conclude a loan agreement or other agreement of a similar nature, or issue bonds or other securities that do not constitute participation rights of an AIC, if the person granting the loan or concluding another agreement of a similar nature or covering or purchasing the bonds or other security is a natural person. This limitation does not apply to a natural person considered to be a professional client pursuant to the regulations regarding AICs.
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Trends and Developments


Authors



LSW is a leading Polish law firm, having practised on the Polish market for over 20 years. LSW’s investment funds practice is well recognised both locally and internationally, working closely with distinguished international and foreign investment fund/private equity practices. The team advises the whole gamut of investment funds, including venture capital, buyout, real estate, infrastructure, distressed asset, and sovereign wealth, through the course of an investment fund’s existence. Our specialist teams advise on, among other things, fund formation, fundraising and M&A. LSW is renowned for advising international and foreign investment funds taking their first steps on the Polish market, as well as assisting Polish funds on creating international structures to approach foreign markets, and attracting foreign investors. The team has advised the following investment funds and/or their portfolio companies: Warburg Pincus, TPG Capital, Mid Europa Partners, Nuveen, GIC Private Limited, Paine Schwartz Partners, Pollen Street Capital, Brookfield Asset Management, Partners Group, Marlin Equity Partners, Davidson Kempner Capital Management, Abris Capital, Enterprise Investors, and many more.

Introduction

The current main highlights of the Polish investment funds market include a growing number of alternatives to AIF structures, the popularity of international structures, and a noticeable shift towards ESG and sustainable investing.

International Angle of PE and VC Market

Many prominent PE and VC funds operating in the Polish market, often perceived as Polish funds, are actually structured abroad, mainly in Luxembourg. These funds typically have non-Polish limited partners (LPs) and were established to focus on Poland and the CEE region. Despite being structured abroad, they are considered part of the Polish ecosystem because their managers and decision-makers are based in Poland, and they primarily invest in targets based in Poland.

Foreign Expansion

A growing trend among successful Polish managers, with a strong track record in the Polish market (usually under AIF structures), is to establish their next fund in Luxembourg. They seek financing from the Polish sovereign wealth fund, as well as the European Investment Fund and other non-Polish investors. These funds aim to invest across the entire EU, not just in Poland or the CEE region.

Role of the Sovereign Wealth Fund

The Polish sovereign wealth fund of funds, PFR (Polish: Polski Fundusz Rozwoju), continues to play a significant role in boosting the start-up ecosystem and investing in innovative technologies and infrastructure. Start-up financing is expected to rebound and flourish in 2024 with PFR’s involvement, as Poland is set to receive funds from the EU recovery fund.

PFR’s funds are regulated by the Investment Funds and the Management of Alternative Investment Funds Act of 27 May 2004 (the “AIF Act”).

PFR integrates ESG risks into its investment decision-making process. Given PFR’s commitment to sustainable investment and its major role in the VC market, a significant shift in the approach of previously ESG-restrained VCs is predicted.

ESG Obligations Start to Take Effect

Managers of alternative investment funds are now obligated to comply with European Union ESG legislation, including the following.

  • Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (SFRD).
  • Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing Regulation (EU) 2019/2088 with regard to regulatory technical standards specifying the details of the content and presentation of information related to the principle of “do no significant harm”, sustainability indicators, adverse sustainability impacts, and the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites, and in periodic reports (RTS).
  • Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, amending Regulation (EU) 2019/2088 (the “EU Taxonomy”).
  • Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or adaptation and for determining whether that activity causes no significant harm to other environmental objectives (the “Climate Regulation”).

Obligatory Disclosures on ESG Risks and ESG Alignment of Investment Strategy

The Polish Financial Supervision Authority is actively monitoring compliance with ESG legislation by Alternative Investment Fund Managers (AIFM). In 2023, all AIFMs were required to disclose information regarding their consideration of ESG factors in investment decisions, covering aspects such as the following.

  • Policies on the integration of sustainability risks.
  • Consideration of principal adverse impacts on sustainability factors.
  • Consistency of remuneration policies with the integration of sustainability risks.
  • Integration of sustainability risks into investment decisions.
  • Assessment of the likely impacts of sustainability risks on financial product returns.
  • Explanation of whether and how a financial product considers principal adverse impacts on sustainability factors.
  • Information on characteristics promoting environmental or social factors.
  • Description of environmental or social characteristics or sustainable investment objectives.
  • Methodologies used to assess, measure and monitor environmental or social characteristics or the impact of sustainable investments in financial products.

Funds Ahead of the ESG Curve

In recent years, the Polish investment funds sector has seen a divide between enthusiastic ESG adopters and more cautious players. Mature funds and those with substantial assets under management quickly embraced ESG, implementing investment policies, due diligence procedures, exclusion lists, ESG scoring criteria, and appointing ESG officers. Smaller funds, while not outright rejecting ESG, were often hesitant, citing their role as minority investors in early-stage companies as a limiting factor.

ESG obligations are now becoming more apparent, with smaller funds realising the necessity of aligning with ESG principles. There are a few factors behind the growing ESG importance.

  • ESG-alignment is a must to co-invest with ESG-focused funds and secure exits to such funds or strategic investors.
  • The growing use of venture debt in the past three years in Poland has also prompted venture debt funds to scrutinise portfolio companies through an ESG lens.
  • Start-ups collaborating with blue-chip companies are increasingly obligated to meet ESG supply chain requirements, prompting VC funds to recognise the ESG transformation within their portfolio companies.

In 2023, the Polish Financial Supervision Authority mandated AIFMs to disclose their ESG stance. Still, some funds revealed a lack of consideration for sustainability factors. The market’s response to these non-ESG alignment statements in 2024 will likely determine whether such funds need to re-evaluate their ESG approach to attract Limited Partners (LPs) and co-investors, and to secure exits.

REITS Law

Approximately 98% of investments in real estate in Poland is undertaken by foreign investors; domestic capital investing in real estate is almost non-existent. This is particularly painful in down phases of real estate market cycles. When foreign investors are struggling to invest abroad, real estate transaction volumes in Poland significantly reduce as there is no domestic capital which, to some extent, could fill the gap after foreign investors. 

The real estate market consensus is that one of the reasons for lack of domestic capital on the Polish real estate market is non-existent regulations on Real Estate Investment Trusts (REITs). These vehicles are adopted in a number of other worldwide jurisdictions and they allow for effective (legally and tax wise) investments in real estate by retail and institutional investors. 

There were several attempts to implement REITs regulations in Poland. In the latest attempt, in 2021, LSW real estate partner Krzysztof Marzyński was part of the Advisory Committee to the Ministry of Development, Labour and Technology that was working on a draft REIT regulation. Unfortunately, there was no political consensus to finalise the work and REIT regulations were not introduced to the Polish legal system.

The real estate market is hoping that the new Polish government will, at some point, return to working on the REIT law.

Alternative Structures

Many VC funds opt not to adopt the AIF structure, choosing instead to operate as limited liability companies or partnerships. This decision is primarily influenced by their smaller size and a limited number of investors, typically consisting of Polish angel investors. These alternative structures are often preferred for their ease of management and cost-effectiveness.

However, even the alternative structure is now encountering emerging competition from a rising trend known as crowdinvesting. This trend is promoted as the fastest and least formalised method of raising funds, posing a new challenge to the traditional structures in place.

Crowdinvesting ramping up as an alternative to form of financing

Crowdinvesting is an alternative method of financing of joint stock companies. The company issues shares in the increased share capital, which are taken up by investors in exchange for payment of the issue price of the shares – in this way, the investors become co-owners of the company (usually minority shareholders).

Crowdinvesting projects are implemented via crowdfunding platforms. The platform’s intermediation between the company and the investor consists in publishing a public offering of the company’s shares on an online platform through which investors subscribe for the company’s shares.

The most important services of the crowdfunding platform provided to the companies and investors include:

  • providing the company with an online platform where the company publishes a public offering of shares and investors subscribe for these shares;
  • preparation and implementation of a crowdfunding campaign page on the platform;
  • accepting subscriptions for shares from investors; and
  • advisory services related to the crowdfunding campaign – in particular in the field of advertising and promotion of the crowdfunding campaign, strategy and organisation of the campaign.

New legal regime for crowdinvesting platforms

Currently, there is a new legal regime for crowdinvesting platforms in the European Union – established pursuant to the Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business. In consequence, from 11 November 2023, only entities authorised by the Polish Financial Supervision Authority may continue to operate crowdfunding platforms in Poland.

As of 12 December 2023, there is only one active crowdinvesting platform in Poland with permission granted by the Polish Financial Supervision Authority.

New opportunities for companies to obtain financing through crowdinvesting

From 11 November 2023, it is now possible for joint stock companies to obtain financing of up to EUR5 million over a period of 12 consecutive months, as part of a public offering of shares, through crowdinvesting. The previous limit was EUR1 million over a period of 12 consecutive months. The condition is to obtain this financing via a crowdfunding platform authorised by the Polish Financial Supervision Authority.

Obtaining financing through crowdinvesting takes place with simplified requirements, ie, without the need to prepare and publish a prospectus and have it approved by the Polish Financial Supervision Authority and without the intermediation of an investment company (brokerage house).

Instead of the prospectus, it is necessary to prepare a key investment information sheet containing the most important information about the public offering of the company’s shares. The key investment information sheet is not subject to approval by the Polish Financial Supervision Authority and its content is very simplified compared to a standard prospectus.

Additional investor protection measures

From 11 November 2023, platforms are also obliged to implement new functionalities aimed at protecting investors:

  • platforms should classify investors as sophisticated investors or non- sophisticated investors;
  • platforms should allow non-sophisticated investors to take an entry knowledge test and simulation of the ability to bear loss (done when registering an investor account on the platform); and
  • each non-sophisticated investor will also be able to withdraw from investing in shares within four days (reflection period).

These solutions are intended to strengthen investor confidence in investing through crowdfunding platforms.

Secondary market of shares – bulletin board

Crowdinvesting platforms that have permission from the Polish Financial Supervision Authority may conduct a bulletin board, which is a kind of secondary market of the shares (until now this was not possible). Investors can post announcements on the board regarding their intention to buy or sell shares of companies that were initially offered on the platform. This will make it easier to find a buyer for the shares and improve the liquidity of these shares.

Prohibition on investment crowdfunding for limited liability companies by offering shares

From 10 November 2023, it is no longer possible to obtain financing for limited liability companies through crowdinvesting, ie, by an offer to subscribe for new shares. New provisions have been introduced into the Polish Commercial Companies Code that prohibit offering the take up and purchase of shares in a limited liability company to an unspecified recipient. Advertising and any other form of promotion of the subscription and purchase of company shares directed to an unspecified recipient is also prohibited. Violation of these provisions is subject to criminal liability.

Crowdlending platforms

As a side note, it should be mentioned that new regulations have also been introduced in the area of crowdlending (ie, granting loans through the crowdlending platforms). From 11 November 2023, only entities with permission issued by the Polish Financial Supervision Authority may continue to operate crowdlending platforms.

LSW

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Law and Practice

Authors



LSW is a leading Polish law firm, having practised on the Polish market for over 20 years. LSW’s investment funds practice is well recognised both locally and internationally, working closely with distinguished international and foreign investment fund/private equity practices. The team advises the whole gamut of investment funds, including venture capital, buyout, real estate, infrastructure, distressed asset, and sovereign wealth, through the course of an investment fund’s existence. Our specialist teams advise on, among other things, fund formation, fundraising and M&A. LSW is renowned for advising international and foreign investment funds taking their first steps on the Polish market, as well as assisting Polish funds on creating international structures to approach foreign markets, and attracting foreign investors. The team has advised the following investment funds and/or their portfolio companies: Warburg Pincus, TPG Capital, Mid Europa Partners, Nuveen, GIC Private Limited, Paine Schwartz Partners, Pollen Street Capital, Brookfield Asset Management, Partners Group, Marlin Equity Partners, Davidson Kempner Capital Management, Abris Capital, Enterprise Investors, and many more.

Trends and Development

Authors



LSW is a leading Polish law firm, having practised on the Polish market for over 20 years. LSW’s investment funds practice is well recognised both locally and internationally, working closely with distinguished international and foreign investment fund/private equity practices. The team advises the whole gamut of investment funds, including venture capital, buyout, real estate, infrastructure, distressed asset, and sovereign wealth, through the course of an investment fund’s existence. Our specialist teams advise on, among other things, fund formation, fundraising and M&A. LSW is renowned for advising international and foreign investment funds taking their first steps on the Polish market, as well as assisting Polish funds on creating international structures to approach foreign markets, and attracting foreign investors. The team has advised the following investment funds and/or their portfolio companies: Warburg Pincus, TPG Capital, Mid Europa Partners, Nuveen, GIC Private Limited, Paine Schwartz Partners, Pollen Street Capital, Brookfield Asset Management, Partners Group, Marlin Equity Partners, Davidson Kempner Capital Management, Abris Capital, Enterprise Investors, and many more.

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