DBJ moves to finalise venture capital framework
THE Development Bank of Jamaica (DBJ) is in the final stages of cementing the recommendations it hopes will guide the legal and regulatory framework in establishing a venture capital/private equity (VC/PE) industry in Jamaica.
According to DBJ Chairman Joseph Matalon, the bank has been "working with stakeholders" and, in particular, the Financial Services Commission (FSC) and the Ministry of Finance and Planning to concretise the recommendations for implementation.
Matalon told the Jamaica Venture Capital Programme (JVCP) press briefing at the DBJ offices in New Kingston on Wednesday that the recommendations under consideration include the establishment of a Limited Liability Partnership (LLP), which will have a general partner who may also be an investor in a limited capacity, managing the fund, along with other limited partners.
"The benefit of the LLP in a number of jurisdictions is that it is... a vehicle that passes through any tax liabilities to ultimate investors, so the vehicle (LLP) itself is not taxable," said Matalon, who further explained that the entities that are a part of the limited partnerships are themselves taxable.
The formulation of such a structure "will be critical for the development of the (VC/PE) industry" Matalon said, adding that this format is not only successful but is highly favoured in other countries in which it is used.
Jamaica Venture Capital Programme Co-ordinator Audrey Richards said that the establishment of new legislation that are specific to the development of the venture capital industry, coupled with amendments to existing laws in an effort to incentivise fund managers to invest in small businesses are among some of the other points of action on the agenda.
In other countries, she said, "they actually put legislation in place that caters to that end of the market, and twin that with some other incentives to encourage investment".
In recommending a revision of the legislation governing the management of pension funds, in an
effort to facilitate possible investment in venture capital, Richards said. "The thinking is that the current legislation needs further clarity, so
the Financial Services Commission is looking
at that. Those reccommendations are [currently] being signed off [on] and will be made to the Ministry of Finance [and Planning] and the Financial Services Commission".
The DBJ signed an agreement with the Inter-American Development Bank (IDB) to develop a venture capital ecosystem in 2013, through the JVCP, and aims to get two venture capital funds started by 2016. The IDB is putting up US$150,000 (J$14 million) to match the DBJ's US$128,000 to establish the ecosystem.