Until this autumn, there was no regulation that adequately addresses investment funds and regulates this sector in a systematic way, providing investors with at the same time sufficient options and necessary protection in Serbia.
Fortunately, the old law has been superseded, that is, two new ones have been adopted that will come into force in April 2020. At least in the context of the legal framework, they will give one new component to the Serbian capital market.
However, although full of innovations and fresh solutions, this new regulation did not particularly resonate with the public, since few, who are familiar with the concept of investment funds, remain not at all fascinated and rather skeptical about new solutions because they are too familiar with the short and unenviable history of the collective investments in Serbia. Therefore, one can find on the internet incidentally written article, while the media, traditionally occupied with other issues, did not dare to discuss such an obscure and obviously not so hot topic.
Currently there are only 19 investment funds in Serbia and 5 companies that manage them. The structure of investments at the beginning of 2018 was such that out of a total of 210 million euros of investments, short-term cash deposits occupy the largest share (around 70%), while the rest are mostly bonds and some stocks.
So, in addition to the modesty of the figures themselves, what draws particular attention is the one-dimensionality of investment. Simply put, funds do not offer many options to the potential investor.
On the other hand, if one considers the relatively inert role of the Securities and Exchange Commission, as the main regulator, as well as the negligible turnover on the Belgrade Stock Exchange and the unattractiveness of investing in small shares and other transferable securities, which are in the open market, clearly is that the capital market in Serbia is extremely underdeveloped and that numerous systemic cracks need to be repaired before embarking on alternative forms of investment.
It is clear that the IT industry could profit especially if the concept intended to be introduced by the new regulation comes to life. It is known that the share of micro, small and medium-sized enterprises in the Serbian economy is very modest (only about 32%). However, what is further discouraging is the fact that the capital market is quite harsh on these players, given that they can hardly reach the extra funds they need to make the leap. Virtually every third person can get a loan from a bank and achieve pensive growth.
From April 2020, therefore, there will also be an opportunity for Serbia to establish venture capital and private equity funds that micro, small and medium-sized businesses see as a potential source of financing. There is an interesting fact that private equity investments in companies in countries of Central and Eastern Europe reached 3.5 billion euros in 2017. These investments are concentrated predominantly in Poland, they are significant in Hungary, Latvia and Romania, while Serbia is the last on the list. On the other hand, investments of so-called funds venture capital in companies in Central and Eastern European countries amounted to 108 million euros in 2017.
All this speaks to the current trend of investing in this part of Europe and, if a foreign investor has the prospect of investing in Serbia, it will now have at least a recognizable regulatory framework, almost identical to the one in force in the EU.
So this market is very colorful and dynamic and this may be the first of many steps that will enable Serbia to be put on the alternative investment map. Of course, other conditions for creating such an environment need to be fulfilled, but this is one of the necessary moves. Through private equity and venture capital funds, private investors can pool their free assets and entrust them with a carefully selected and regulatory-competent team of people who will manage those funds.
IT firms and firms from other sectors that may be targeted at the beginning of their business cycle such investment, if they meet the conditions prescribed by the policies and rules of the specific fund, will not only bring them capital, but will also provide them with the invaluable know-how of experienced managers, strategically stronger positions, contacts and maybe even a network of clients, writes Nova Ekonomija.
