Issue 4, 2014. August-September



For years, direct investment has overshadowed portfolio investment in Georgia and hampered the development of the local capital market. The new law on investment funds, however, could provide a stimulus to change that. Levan Kokaia, a guest lecturer at the Georgian Institute of Public Affairs School of Social Sciences outlines the differences under the new law and its possible implications for Georgia's capital markets.

Levan Kokaia


Prior to July 2013, Georgia's capital markets were regulated through the sixth chapter of one prima in the Law on Securities Markets. Last year, however, Parliament adopted a new Law on Investment Funds, which provided the means to develop co-investment companies - and created the base for capital markets in Georgia to develop.

The previous legislation was too narrow to foster the development of investment funds, mainly because it limited its definition of investment funds to one type, the "experienced investors' investment fund." This limited investors and did not allow them to make the best use of opportunities in the market. In addition, weak administrative procedures created chaotic circumstances for investment funds to open and operate.

Benefits under the new law

Generally, the new investment funds law, and the order from the National Bank of Georgia president on "the rules and circumstances of registering investment funds in the National Bank of Georgia" are favorable mechanisms for developing capital markets in Georgia.

The main difference between the previous regulation and the new one is the detailed categorization of four types of investment fund: 1. The Pension Investment Fund, which may be open, kept for an interval and closed; 2. The Experienced Investors' Investment Fund; 3. The Share Investment Fund (including venture capital or private capital investment funds); 4. Other Types of investment funds, as regulated by Georgian legislation.

One very important legislative innovation is the existence of non-entrepreneurial and entrepreneurial investment funds, such as an open joint stock company which opens opportunities and tools to trade on the free markets along with incentives for stock and exchange markets in Georgia.

In contrast to the previous legislation, the new law offers different types of unique direct and portfolio investment opportunities to make decisions. Among the categories, the most important aspect is the definition of open joint stock companies as the most significant player of capital market processes.

More transparent, better management

The new regulation also includes additional obligations for investment funds which increase transparency and accountability. For example, investor services now have to be published as public information - which is the responsibility of the fund's supervisory body, and must be submitted to the head of the fund on a regular basis as stipulated in the law.

In addition, the law now spells out the requirements and functions of the asset management company, which serves to provide better legal conditions for managing the fund's investment policy.

Latest amendments to the law

Unlike the previous regulation, the new law describes more complex requirements for registering investment funds. This rule ensures more stability and safety for existing and potential investors who are creating and managing investment funds. In addition, it also simplifies administrative procedures to better supervise funds.

One oversight of the first version of the law, passed in July 2013, was that it failed to define the government body that would regulate investment funds. On November 20, 2013, however, Parliament amended the law and announced that the National Bank of Georgia would regulate investment funds until March 1, 2014. Parliament later extended the National Bank's supervisory power until January 1, 2015.


The new law on investment funds provides the opportunity and stimulus for joint stock companies to become open and accountable and to create investment within one of many different types of fund. In addition, the improved administration and supervisory mechanisms provide important incentives for securities traditions and could attract different sources of portfolio investment inside Georgia. These factors will undoubtedly play a very positive role in developing Georgian financial and capital markets.