1. DOMINICAN REPUBLIC
IFLR REPORT | PRIVATE EQUITY AND VENTURE CAPITAL 2015 15
P
rivate equity as an investment strategy developed during the 1980s
and the 1990s in more developed markets and economies of the
region, while local and foreign investors in the Dominican Repub-
lic dealt with an anachronistic companies law. The Commercial Code of
the Dominican Republic, which was enacted on April 16 1884, had not
been subject to adequate reform since its enactment, and did not provide
for flexible vehicles or strategies to encourage the raising of capital in pre-
existing businesses. Legal and tax consultants recommended offshore cor-
porations and trusts due to favourable tax treatment, as well as flexible laws
that facilitated diversity in investment strategies and in the composition of
the shareholder structure of each vehicle. However, private equity invest-
ments were isolated and not available to the general public.
During the first decade of the 21st century, capital markets were consid-
erably underdeveloped. This was mainly because of the outdated corpora-
tions law, but also because of the unavailability of reliable data concerning
local operations that were not subject to regulation (even though the Capital
Markets Act of the Dominican Republic had been enacted in 2000). How-
ever, in 2005, brokerage houses, a stock exchange, and a clearing and deposit
securities firm began operating with increasing participation from both the
private and public sectors. In 2008, a new corporations law was enacted, fi-
nally updating the corporate vehicles incorporated under Dominican law;
and by 2010, the participation of the brokerage houses and stock exchange
began to show signs of significant growth: the market then began to reflect
relevant operations.
Investment funds remained an unexplored mechanism during this pe-
riod. Investment funds and investment fund managers were created under
the Capital Markets Act of 2000; however, the legal provisions under which
fund managers and investment funds could interact (and guarantee that
such investment funds would represent separate entities from the fund man-
agers) did not exist. It was not until the enactment of the Mortgage Market
and Trust Law in 2011, which expressly stated that fund managers, corpo-
rations regulated by the Capital Markets Act and the Superintendence of
Securities had fiduciary duties towards the investment funds they manage,
that an appropriate legal structure able to regulate the relation between in-
vestment funds and fund managers came about. Indeed, due to the absence
of said regulation, the process of filing for a fund approval had not been
properly set out until 2012.
Available regulations did not refer to private equity funds as a type of
fund, but allowed funds to make equity investments in private companies
issued according to the laws of the Dominican Republic. The main require-
ment for these investments was that the fund had to implement mechanisms
to be informed of the financial situation of the target.
Removing
the chains
Francisco Vicens De León and Carolina Figuereo Simón of Alvarez & Vicens explain how
the Dominican Republic has shed the constraints of an anachronistic companies law
“
During the first decade of
the 21st century, capital
markets were considerably
underdeveloped

2. DOMINICAN REPUBLIC
IFLR REPORT | PRIVATE EQUITY AND VENTURE CAPITAL 201516
However, in 2013 the National Council of Securities issued a new regu-
lation to improve investment funds operations, which contained an entire
section dedicated to private equity funds (Regulation R-CNV-2013-33-
MV). Such regulations were confirmed in 2014, when the National Council
of Securities modified the regulation related to managers and investment
funds (Regulation R-CNV-2014-22-MV).
The necessity of new products for investors in the Dominican capital
market has encouraged managers to identify new options that allow for di-
versification. Private equity investment is a great example of an innovative
product that allows investors to diversify risks. Nonetheless, Regulation
CNV-2014-22-MV has established specific rules that do not always take
into account the reality of Dominican markets. They take a very conservative
approach to private equity funds, imposing restrictions and limits that will
represent obstacles in the development of the industry. Notwithstanding,
this regulation may serve as an opportunity to assist private entities to im-
prove their corporate governance rules, operating structures, and supervision
methods, to be able to access public funds via the securities market.
It is important to point out, however, that Regulation R-CNV-2014-22
allows funds to invest in companies that are incorporated as corporations
or limited liability companies, and that are domiciled in the Dominican Re-
public. A broad interpretation of this text may suggest that companies with
the characteristics of a corporation or a limited liability company incorpo-
rated in other jurisdictions, and domiciled in the Dominican Republic can
receive investments from the public through private equity funds. This
would represent an opportunity for private equity funds to succeed locally
in obtaining lucrative investments and also to open the road for further in-
vestment in such funds and increase the interest of local entities to improve
their structures to obtain funds via private equity funds.
On the other hand, although this broad interpretation may be acknowl-
edged by our regulators, our experience to date is that the Superintendence
of Securities has a restrictive interpretation of Regulation R-CNV-2014-22.
As a result, further efforts in obtaining a formal position from the regulator
on this matter would assist in defining the strategies for private equity funds
in the near future.
In addition, private equity fund managers must establish the investment
strategy by deciding, in detail, which geographic area, economic sectors and
type of companies they will invest in. This task often proves to be difficult.
Restricting the investment to a geographic area, or to a specific economic
sector is likely to limit the ability of the fund to generate attractive returns
of investment, considering the size of Dominican market. As a developing
country, the Dominican Republic has a limited range of new industries or
industries in growth. For example, the Dominican Republic’s main areas of
growth in recent years have been tourism, financial services, energy and con-
struction, all areas which are linked directly in their respective industries,
and which are represented by few important players, thereby reducing the
possibility of appropriately diversifying investment.
In this regard, Regulation R-CNV-2014-22 also contains requirements
on diversification. A private equity fund cannot invest more than 20% of
its assets in equity of one company. Even though the Superintendence of
Securities may extend that limit to 40%, this authority is discretionary and
exceptional, and must be based on a detailed report made by the investment
committee of each fund. Companies with the potential to be profitable are
few. In those circumstances, the said limit represents a major obstacle in the
development of private equity funds.
Regulation R-CNV-2014-22 establishes criteria to protect investors,
which, in addition to transparency, is one of the objectives of the Superin-
tendence of Securities. Nevertheless, it is important that a certain flexibility
in these restrictions is considered, to allow more institutional and sophisti-
cated investors to participate in these funds. If investors with greater expert-
ise and knowledge make riskier investments, more investors with less
expertise and knowledge may also participate, and thereby assist in the
growth and diversification of the capital and securities market.
It is important to point out that, despite the situation of some other na-
tions in the region, the Dominican Republic continues to grow its economy,
and is set to continue providing that economic, political and social stability
remain. This plays greatly in assisting the growth and stability of the capital
and securities market. Until 2013, only three investment funds had been
approved and only one was operating; within the last 12 months, seven have
been approved and six are operating. This shows an improvement by the
regulator in providing proper supervision, and by our investment fund man-
agers in participating in the capital and securities market.
This improvement is accompanied by a process of discussion and analysis
between the public and private sectors of a new Capital and Securities Law;
six different versions of the new law have been reviewed. The new law looks
to define certain tax incentives, address some operating hurdles which have
resulted naturally from a market that is still in its early stages, as well as to
restructure the National Council of Securities, the Superintendence of Se-
curities, and establish new requirements for the participants in the sector.
The law seems to have the backing of the relevant parties (both public and
private), is likely to be enacted within the next 12 to 24 months, and serves
as both a threat and an opportunity, whereby certain aspects of the regulat-
ing structure may be amended in an adverse manner. It may also serve to
improve and correct many aspects and clarify the application of incentives,
which are limited under the existing legislation.
The challenge presented by the discussion of the new law and the con-
tinuing growth of capital markets in the Dominican Republic represent an
important opportunity in incorporating private equity funds. It is also an
opportunity to reduce the time between the enactment of legislation and
its amendment, to enable the enactment of legislation which adapts to the
needs of the market and assists in its growth.
“
Private equity investment is a
great example of an innovative
product that allows investors
to diversify risks
“The Dominican Republic has a
limited range of new industries
or industries in growth

3. DOMINICAN REPUBLIC
IFLR REPORT | PRIVATE EQUITY AND VENTURE CAPITAL 2015 17
About the author
Francisco Vicens De León is a partner at Alvarez & Vicens. He
obtained his law degree from the Universidad Iberoamericana
(UNIBE), and completed his Master’s degree at the Escuela de Alta
Dirección y Administración (EADA), Barcelona, Spain, with a specialism
in tax law. He completed an additional post-graduate degree in strategic
negotiation at the Instituto de Educación Continua de la Universitat
Pompeu Fabra, Barcelona, Spain.
De León has over 14 years’ experience in business law, and particularly
in corporate and financial law. He is a member of the board of directors
of the Pioneer Sociedad Administradora de Fondos de Inversión, and is a
legal advisor to the Association of Fund Managers of the Dominican
Republic (ADOSAFI), as well as other leading fund managers and
leading private investment groups in the Dominican Republic. De León
advised and structured the first public real estate investment fund of the
Dominican Republic and on the incorporation of other investment
funds using the strategy of investing mainly in government debt. He
has directed and participated in some of the leading business
transactions in the country, including the restructuring and merger of
leading insurance and banking institutions, as well as complex financial
transactions involving leading members of the tourism, food and
beverage industries.
Francisco Vicens De León
Partner, Alvarez & Vicens
Santo Domingo, Dominican Republic
T: 809 562 6534
F: 809 562 6540
E: f.vicens@av.com.do
W: www.av.com.do
About the author
Carolina Figuereo Simón is an associate at Alvarez & Vicens. She
obtained her law degree (summa cum laude) from the Pontificia
Universidad Católica Madre y Maestra (PUCMM), Santo Domingo in
2010 and completed her general LLM in Georgetown University,
Washington DC, in 2013. She has focused her practice on business law,
particularly on corporate, financial and securities law.
Simón advises leading fund managers and leading private investment
groups in the Dominican Republic. She has also participated in the
structuring of complex financial transactions involving commercial real
estate, tourism and food and beverage, representing lenders as well as
debtors.
Carolina Figuereo Simón
Associate, Alvarez & Vicens
Santo Domingo, Dominican Republic
T: 809 562 6534
F: 809 562 6540
E: c.figuereo@av.com.do
W: www.av.com.do