Undoubtedly, the figure of the SICAV has been surrounded by a certain controversy since it took its first steps in Spain. However, it is a perfectly legal investment instrument, both in our country and in many others around us, and that you may be interested in knowing even if you are not going to use it in the immediate future.
Therefore, in this article I explain, in a rigorous but easy-to-understand way, what SICAVs are, where they are regulated, what requirements they must meet and what are their advantages at the tax level.
✅What is a SICAV: definition and characteristics
The acronym SICAV stands for “Variable Capital Investment Company”.
Therefore, SICAVs are collective investment instruments (IIC), that is, entities through which a group of people channel their investments to manage them collectively.
In Spain, SICAVs take the form of Sociedades Anónimas (SA). In this way, its shareholders will be the investors themselves, who will participate in the company in proportion to the capital they have contributed.
The SICAV managers will invest all of these contributions in all types of financial products, such as:
Consequently, the SICAV invests in a set of assets that are centrally managed by the company, and in which each and every one of the partners participates in proportion to their economic contribution.
Therefore, the assets of the SICAV will evolve (hence the term “variable”) according to market fluctuations.
Similar to what happens in investment funds, shareholders can sell all or part of their shares, to make effective the capital gains or losses that have occurred.
However, as we will see later, there are important differences between funds and SICAVs.
✅Where are SICAVs regulated?
The regulation of SICAVs is different depending on the country in which they are constituted.
On Spain are fundamentally governed by these three rules, which also apply to investment funds:
- Law 35/2003, of November 4, on Collective Investment Institutions.
- Royal Legislative Decree 1/2010, of July 2, which approves the revised text of the Capital Companies Law.
- Royal Decree 1082/2012, of July 13, approving the Regulations for the development of Law 35/2003, of November 4, on collective investment institutions.
But don’t worry, I’m not going to overwhelm you with technical details or legal issues.
Of course, you can keep these regulatory references for when you need them, but in the following sections I summarize in a simple way what legal requirements SICAVs must meet and what their main advantages are.
Remember that regulation may be different in other countries.
In fact, there are figures equivalent to the SICAV in European States such as Luxembourg, Switzerland, France, the United Kingdom, Italy or Belgium, among others, and in each country the legal nuances are somewhat different.
✅SICAV: constitution and operation requirements
The regulations that we have just mentioned establish the following basic requirements that a SICAV must meet in Spain:
➡️ #1. Minimum capital of the SICAV
In Spain, the minimum capital to establish a SICAV is € 2,400,000.
This is one of the great differences that exist between SICAVS and other public limited companies, since in these the minimum capital is € 60,000.
As you can see, it is a considerable amount.
Hence, SICAVs are usually used by wealthy investors, often to manage all or part of the family assets.
Nevertheless, in the case of Luxembourg, which is where a large part of the European SICAVs are domiciled, a minimum capital of only € 300,000 is required.
However, given that SICAVs have the legal form of Public Limited Companies, they can also be listed on the markets. Specifically, in Spain they could do it in the Alternative Stock Market (MAB), so it would be possible for any individual to acquire shares through this channel.
On this page you can consult the complete list of SICAVs listed in Spain.
➡️ #2. Number of shareholders
In accordance with the law, the number of shareholders of the SICAVs cannot be less than 100. Therefore, this is another substantial difference with respect to limited or joint-stock companies, which only require one partner to be incorporated.
However, legal tricks are sometimes used to get around this requirement.
In this sense, it is possible that one or a few partners would contribute practically all the capital, while the rest would have only testimonial stakes in the SICAV.
For example, if two partners contributed € 1,190,000 each, the remaining 98 members would only have shares of € 204.08 each. Therefore, in practice, the SICAV would essentially belong to these two large partners.
Again, the Luxembourg law is different: only two shareholders are required to form a SICAV.
➡️ #3. Liquidity and investments
In accordance with current regulations, SICAVs must maintain a liquidity of at least 1% of its assets.
In addition, current legislation regulates in considerable detail what it calls “Assets suitable for investment”. That is, in what type of products or securities the SICAV can invest.
In this way, it is established:
- What are the fixed income, variable income, real estate and other assets that the company can acquire.
- What requirements must each of them meet.
- What maximum proportion they can represent within the assets of the company.
As you can see, the rules are quite detailed and strict in regulating these investment companies.
➡️ #4. Formal requirements
Of course, the constitution and management of a SICAV in Spain must meet a series of formal requirements that are detailed in the law.
Without going into much detail, I will comment on some of the most important points:
- The draft constitution of the SICAV must be authorized by the National Securities Market Commission (CNMV).
- The SICAV must adopt the legal form of a Public Limited Company.
- The registered office of the SICAV must be in Spanish territory.
- They must prepare various documents to periodically inform participants.
As you can see, the formal obligations of SICAVs are quite broad and require professional and specialized control and management.
✅Taxation of the SICAV: what taxes do you have to pay?
Without a doubt, the greater attraction of SICAVs it is your taxation. And it is that, unlike an ordinary Public Limited Company, the SICAV pays for its benefits to a 1% tax rate.
This reduced rate in Corporation Tax allows a greater proportion of the profits to remain with the entity. Keep in mind that the general rate of this tax is, as of today, 25%, so the advantage is very significant.
Of course, if the shareholders sell their shares, they also they will have to pay income tax for the capital gains they have obtained, like any other natural person.
Here the corresponding tax rate will be applied in each case, which will oscillate between 19% and 23% (or up to 26% in certain autonomous communities).
Thus, as long as the investor does not liquidate his investment in the SICAV, payment of taxes may be deferred that would correspond to you for personal income tax, and the longer you keep the investment, the greater the benefit of the tax deferral.
Therefore, this tax deferral in Income Tax is another important advantage that is added to the very advantageous reduced rate of 1% in Corporation Tax.
✅ Difference between SICAV and investment fund
There are many similarities between SICAVs and investment funds. In fact, they are regulated in the same regulations and have a very similar operation.
However, important differences also separate them:
- Minimum capital: it is necessary to have a minimum of 2.4 million euros to set up a SICAV. However, in the case of funds, at least 3 million are needed.
- Maximum capital: in the case of SICAVs, the law says that the maximum statutory capital may not exceed the initial capital by more than ten times. On the contrary, the funds do not have legal limitations regarding maximum capital.
- At the legal level: SICAVs have their own legal personality. In other words, the SICAV is a Public Limited Company, a company. Therefore, it is self-managed through its own board of directors, where the partners have a voice and vote. On the contrary, the funds do not have this legal personality and have to be managed through external management companies.
- Investment policy: In relation to the foregoing, the SICAV’s shareholders may decide the investment policy of the company. As, in addition, the partners with significant participation are usually few, it is easy for those two or three majority partners (or even just one) to determine what to invest in. In the case of funds, units are typically distributed among thousands of individual investors, who have no ability to influence the investment policy of the fund.
Otherwise, both collective investment instruments share similar characteristics.
✅ Main Spanish SICAVs
According to the latest available data (2020), the five largest Spanish SICAVs by assets under management are as follows:
- Investment Torrenova, belonging to Banca March (€ 907,785,000).
- Morinvest, which is owned by the well-known businesswoman Alicia Koplowitz (€ 536,134,000).
- Allocation, managed by the Del Pino family (€ 427,864,000).
- Gesprisa Investments, which belongs to the founder of Pronovias, Alberto Palatchi (€ 412,114,000).
- Herprisa Investments, from the same owner as the previous one, Alberto Palatchi (€ 379,775,000).
Other well-known entrepreneurs such as Sandra Ortega (Soandres de Activos) or Juan Abelló (Arbarín) also have important SICAVs. However, many of them also participate in other SICAVs domiciled in Luxembourg.
✅What do I think about SICAVs?
Apart from certain controversies (mainly related to the low taxes applied to them), SICAVs are a perfectly legal tool, which can be suitable for large investors who want to centralize the management of a good part of their assets in a single instrument.
Its advantages at a legal and tax level are really significant.
However, for a private investor it is usually much more interesting and profitable self-management and / or passive management.
For this you have a wide variety of options at your fingertips:
- Investing in long-term indexed funds or ETFs, which is the approach I take in my ARALP (long-term high performance) strategy.
- Investing in value or value investing, acquiring undervalued companies to keep them until their price rises.
- Direct investment in companies that distribute dividends, which will allow you to generate passive income from the stock market. If this option appeals to you, you may be interested in my course on investing in dividends or my membership.
Although these are some of the more interesting possibilities, there are many other options that I regularly analyze on the blog. In fact, if you don’t want to miss any article, I recommend that you subscribe to my newsletter free.
I hope that, if you have come this far, you are already more clear about what a SICAV is and what its main characteristics and advantages are. Anyway, if you have any questions or want to contribute your point of view, I encourage you to share your opinion in the comments.
Until the next article, I wish you a very happy investment!