DBJ Finalizing Legal Framework for Venture Capital Industry

The Development Bank of Jamaica (DBJ) is finalizing recommendations to develop the legal and regulatory framework that will govern the country’s private equity/venture capital industry.

The recommendations, which include crafting new legislation and amending existing laws, will be submitted to the Ministry of Finance and Planning and the Financial Services Commission (FSC) for consideration.

DBJ Chairman, Joseph M. Matalon, said that the entity has been “working with stakeholders”, particularly the FSC, to develop the proposed recommendations for implementation.

Mr. Matalon, who was addressing a media briefing at the DBJ’s Oxford Road offices in New Kingston on Wednesday, July 23, said that a “significant” amount of work has been done, adding that “we have short, medium, and long-term plans, in terms of how we affect the legal and regulatory environment.”

Among the recommendations is a Limited Liability Partnership (LLP), which entails a general partner, who may also be an investor in a limited capacity, managing the fund, and includes several other limited partners.

“The benefit of the LLP in a number of jurisdictions is that it is, in effect, a vehicle that passes through any tax liabilities to the ultimate investors. So the vehicle (LLP), itself is not taxable, but the entities, which are members of the limited partnership… are themselves, taxable,” he explained.

Noting that this format is favoured in other countries where it is used, Mr. Matalon contended that, over the long-term, the development of such a structure “will be critical to the development of the industry.”

Jamaica Venture Capital Programme Project Coordinator, Audrey Richards, said that another recommendation relates to instituting venture capital-specific legislation, geared towards incentivizing fund managers investing in small companies.

“In a number of countries…they actually put in legislation that caters to that end (small investors) of the market and twin that with some incentives to encourage investment,” she explained.

Another proposal is a review of the legislation governing pension funds to facilitate possible investment in venture capital.

“The thinking is that the current legislation needs some further clarity, so the Financial Services Commission is looking at that. Those (and other) recommendations are (currently) being signed off (on) and will be made to the Ministry of Finance and Planning and Financial Services Commission,” she indicated.

The Jamaica Venture Capital Programme (JVCP) is a Government of Jamaica (GoJ) initiative aimed at developing the environment to mobilize long-term equity funding to enable greater access to alternative financing sources for high potential, small and medium size (SME) enterprises, and entrepreneurs.

Its development and implementation, which commenced in 2013, is being embarked on over a three-year period.

It is being facilitated through a technical cooperation agreement, signed by the DBJ and Inter-American Development Bank (IDB), which provides upwards of $20 million in grant and counterpart funding.