Investment funds in Republic of Kazakhstan

1.1. The essence of investments

The term “investment”  from Latin “invest” means input capital in order to receive definite benefit. According to the Law of RK “about investments”  investments are “ all kinds of property (except goods for personal consumption), including subjects of financial , also rights for it, which is inputted by investor into charter capital of juridical entity or increasing of fixed assets that used for entrepreneurial activity.

In Kazakhstan’s economy the term “investment” has become to use with crossing to market relations. In conditions of centralized directive economy only one concept used – “capital inputs”. However, the practice shows that conception “investment” has much wider meaning, because it expresses all kinds of financial, property and intellectual values, which input in the entrepreneurial sphere for getting definite economic profit.

Capital inputs are just part of investment and directed to basic capital.

There are different approaches for “investment” conception.

“Investments represent itself all kinds of assets that are inputted in economic activity for getting income”.

“Investment activity is a refusal from using incomes for current consumption, but to form capital and expected expansion of consumption in the future”.

“In the macroeconomic level, investments are aggregation of all inputs in property and stocks in country’s economy”.

“Investments are acquisition of assets, for example securities, art, deposits in banks for receiving financial profit or increasing of capital”. 

From these definitions we see that the main aim of investments is profit. That’s why investment is senseless, if it doesn’t give such result.

Consequently, economic content of investments in conditions of market economy consist in combination of two sides of investment activity: expenses of resources and receiving results. 
 
 

Functions and role of investments in the state’s economy

There are main functions of investments:

1. Promotion of development of production or forming internal supply of goods and services ;
2. Indemnity of threadbare main funds and using raw materials for renewal of production process;
3. Development of human potential, new technologies and materials;
4. Creating the basis for future economic growth.

On the macroeconomic level investments are basis for developing national economy and increasing effectiveness of production by:

1. Renovation and reconstruction main manufacturing funds of enterprises and non-production spheres;
2. Acceleration of scientific-technological progress, improvement of quality and providing with competitiveness of native produce;
3. Creation of necessary base of raw materials;
4. Reduction of costs of production
5. Increasing and improving structure of export;
6. Solving social problems, including problems of unemployment.

On the microeconomic level, investments need for achieving following goals:

1. Renovation of basic production funds that under influence of competition and scientific-technological progress;
2. Introduction new forms and methods of labor’s organization;’
3. Fulfilling environmental-protective activities;
4. Preparation of qualified specialists;
5. Acquisition of securities and input means to assets of other enterprises;
6. Acquisition of controlling shareholding.

Consequently, investments as economic category play important role in the economy’s development. Due to investments aggregate demand, labor force and common income are increase.  

1.2. Types of investments

Along with that in economic theory there are different approaches to definition “investment”; also we have different classifications of investments.

There are:

1. By direction of investments;
2. By forms of investments;
3. By possibilities to manage the objects of investments;
4. By terms of investment activity;
5. By degree of risks.

Depending on direction of investments, there are 4 types of investments:

• Real investments;
• Financial investments;
• Investments to nonmaterial assets;
• Intellectual investments.

Real investments are investments to basic capital, means for supplement turnover means. It is capital inputs that directed to construction of new, reconstruction and expansion of manufactures. It has capital basis, that’s why production capital increases.

Financial investments are investments of moneys to securities, deposits, other financial instruments, but also granting loans, credits.  It has financial basis, that’s why money capital increases.

The volume of financial investments depends on degree of well-development of national financial market and its institutes. Financial investment activity contributes to growth of real investments significantly. That’s why we can say that both of them are supplementary, but not competitors.

Investments for nonmaterial assets include acquisition of rights to use property rights (for example, rights to use land plot), acquisition of patent, license.

Intellectual investments are investments to human resources (to social sphere, education of skilled workers, increase of qualification of specialists), also means to scientific-investigative works.

Thus, in modern economy investments can be:

• Moneys, banking deposits, shares, obligations , pays, and other financial instruments;
• Movable and immovable property (buildings, constructions, transport, equipment, land plots, and etc).
• License, patents, inventions, programming goods, good sign,   property rights, objects of copyright  and other intellectual values.

By forms of investments there are following types of investments:

1. State investments, that executed by state officials, state enterprises and other enterprises with state participation;
2. Foreign investments, that realized by foreign countries, international organizations, foreign juridical and physical entities;
3. Private investments implemented by individuals and non-state enterprises.

By possibilities to manage objects of investments, they are divided to:

1. Direct investments;
2. Portfolio investments;
3. Indirect investments.

Direct investments refer to real investments. It gives the rights to participate in managing of object of entrepreneurship. As a rule, direct investor by investing his means in construction of new or active object, then he is becoming owner or constituent of business. In Kazakhstan, direct investments represent all kinds of inputs to main capital, that implemented by foreign and native investors, excepting investments that connected with state warranties of RK.

Indirect investments are portfolio and other investments that have money basis.

The end aim of indirect investors is receiving money profit. That’s why they don’t give the rights to manage object of investments. As against to direct investments, portfolio investments are used in securities (simple and preference shares, corporative obligations and others). To other investments we refer granting credits, but they don’t give right to participate in managing objects of entrepreneurship.

Depending on terms of investments, there are:

1. Short-term investments;
2. Average-term investments;
3. Long-term investments.

Short-term investments are investments for no more than 1 year (for example, short-term deposit investments purchasing short-term saving certificates, preference shares, and etc).

Average-term investments are investments from1 year to 5 years (for example, average-term deposits, purchasing securities, and etc).

Long-term investments are investments for more than 5 years.

By degree of risks there are:

1. Investments with low level of risks;
2. Investments with average level of risks;
3. High-level risks.

Investments in high-tech sphere and new scientific elaboration that get involved with high- level risks are called venture investments.

Small projects are simple and limited by volume. For example, in USA investments for small projects amount to 10-15 million dollars, labor force and time are 40-50 thousand people and hours.

Megaprojects are target projects.  Such projects can be international, state (for example, creation of new capital-Astana), regional, branch and mixed. Costs of such megaprojects are expensive (more than 1milliard dollars).As a rule, these projects is long-term and consist of small projects.

By degree of participation in reproductive process it is distinguished following kinds of real investments:

• Reinvestments, which are directed to repair of old part of production capital;
• Nett investments, which intended for reconstruction, modernization and expansion of production process;
• Brutto investments are aggregation of reinvestments and nett investments. 

1.3. Investment policy in RK

     At the present stage of development of Kazakhstan as a new independent state, orienting to the market economy, the main direction of economic reforms is to develop and implement investment policy aimed at ensuring high economic growth and raising economic efficiency.

     To solve these problems, as well as to ensure the structural transformation of the economy through a program of the government's actions to deepen reforms in the context of limited domestic sources of financing essential attraction of foreign capital in the economy.

     Investment policy is one of the main elements of economic policy, system of measures that determined the volume, structure and direction of capital investments, growth of main funds and its innovation by new technologies. It stimulates and regulates investment process, forms conditions for stable social-economic development of state, region, branch and business at a whole.

     Investment policy is based on legislature. In the annual Epistyles of President of RK, decrees of President of RK and in investment laws it is determined directions of investment activity.

Investment policy of state includes:

• Regional investment policy;
• Branch investment policy;
• Investment policy of economic subjects.

     Regional investment policy is aggregation of measures that regulates by state for providing with investment attraction of region for foreign and native investors. Such factors as natural resources, economic potential and climate conditions influence on investment activity.

Branch investment policy is realized for:

1. Choice and support priority branches;
2. For accelerating science-technological progress and introduction new technologies and forms of organization of work in production.

     Investment policy of economic subjects is connected with searching resources of investments and its effective investment in constructions of new and repairing of old manufacturing.

     The goal of state investment policy of Kazakhstan is realizing support of important branches for providing with economic growth and increasing productivity of work.

     During the transition of the Republic of Kazakhstan to market economy was created in parallel and regulatory - legal framework for investment. 
February 28, 1997 № 75 - 1 SAM came the Law "On State Support of Direct Investment", which regulate the relations arising in support of direct investments in Kazakhstan, and by a single state agency authorized to carry out state support and represent the Republic of Kazakhstan - " Agency for Investments, whose chairman is appointed and removed from office only by the Government of Kazakhstan. 
Also April 5, 1997 № 3444 Presidential Decree "On approval of list of priority sectors for attracting direct domestic and foreign investment" was defined list of highest priority and most important industries for investment. In particular, industries such as:

     1. Production infrastructure.

     2. Manufacturing industry.

     3. Facilities in Astana.

     4. Housing, social facilities and tourism.

     5. Agriculture.

     Presidential Decree of March 6, 2000 № 349 approved rules for the granting of privileges and preferences in investment activity.

     To improve the investment activity is also influenced by the level of small and medium-sized businesses in the country, as the economy of any state cannot function and develop without an optimal combination of large, medium and small businesses, and small business plays an increasingly important role in the economy of the country. It was therefore agreed a number of resolutions aimed at the development, improvement and protection of small and medium business (to support small businesses).

     But the effective use of investment resources is impossible without the securities market and in particular - Stock Exchange. And here, in order to implement the development strategy of Kazakhstan till 2030, January 28, 1998, № 3834 was adopted by Presidential Decree, which adopted the Programme of Action and including in the field of investment policy, goals and priorities. The Decree of the issues to ensure a favorable investment climate in the Republic in terms of market economy (along with economic and social issues), and also covered issues related to ensuring the effective protection of foreign investments. In the section "Favorable investment climate" a decision on the accelerated development of the stock market, protect and support small businesses, etc.

     The last changes on Investment Law were on January 8^th, 2003.

     Thus, both politically and legally in the Republic of Kazakhstan has created a very favorable investment climate. 
 
 
 

2.1. Kazakhstan. Current conditions of investment funds

     Securities market in Kazakhstan are more than ten years, during this relatively short period, he passed all stages of evolutionary development, from formation to formation.

     Currently, the stock market is modernized, taking into account international practice and the specific features of the economy.

     One of the innovations in stock market development is the emergence of investment funds in connection with the adoption in July 2004 of the Law "On Investment Funds". It should be noted that such a law is adopted in 1997, but it is significantly outdated and no longer corresponded to modern tendencies of development of the stock market. With time of introduction of the first law in Kazakhstan was established just one investment fund (JSC "Mutual fund - Bank of Kazakhstan Halyk, Capital), which will exist one and a half years and could not attract investors and develop its activities for several reasons. Firstly, because of imperfection of the legislation on investment funds, mostly because of the definition of only one and not the most efficient in terms of cost models for organizing activity of fund. Secondly, due to a problem of double taxation scheme- investment income derived from investment funds. And, because of mistrust and low awareness of investors about the funds.

     The new version of this law, already considering defect, the right ¬ applied practice, and international experience, should solve the problem of collective forms of invest and to attract domestic investors to the stock market. 
Creation of investment funds with professional managers at the moment is particularly important in the continued growth of domestic savings, the need for their effective involvement in the real economy. In addition, the condition that growth and falling dollar to the national currency, a substantial uncertainty of the dollar against the euro, reducing interest rates on deposits in banks, the emergence of investment funds as an alternative financial instrument in the stock market was very timely and serve as an additional incentive for securities market development in general.

     To be able to judge the potential of the new law, it is given in explanation of general information about it. The law stipulates two types of investment funds: shared and unit, the latter being introduced for the first time. 
Unit Investment Fund - Combined investors' funds transferred to trust Management Company. Mutual fund itself is not a legal entity - the so-called "property complex", and in fact, an investment portfolio.

     By investing money in mutual funds, the investor actually concludes with a management company agreement for trust management and becomes a holder of shares. Unites are issued by Management Company and act as trustee for these mutual funds.

     Such funds may be created in three forms: open, closed and interval. In an open-end fund investor has the opportunity to buy or sell his units in the prescribed manner, but at least once every two weeks. In the interval fund investor has the opportunity to buy or sell a stock only during certain periods, but at least once a year. Closed-end fund offers its unit’s holder the right to participate in the general meeting of holders of units of the fund, as well as to receive dividends on units. 
In addition, a separate type of investment funds is risk investment (or venture capital funds).Venture investment funds can only be joint -stock or closed unit investment funds.

     Unit is the nominal issued security. Unit certifies the right of the owner to share the property that constitutes mutual fund, as well as to receive the money from the sale of mutual fund assets at the termination of its existence. Unit is uncertificated securities - registration of rights to shares by the registrar on personal accounts in the register of unit holders. 
Shareholder income consists of gains of its shares. Value of shares over time may both increase and decrease, because the changing market value of securities in the Fund's assets. That is why the holders of shares shall bear the risk of losses associated with the change in value of shares. Fund performance is guaranteed neither the state nor the management company. Management Company and shall not provide any guarantees, promises and assumptions about future efficiency and profitability of its investment activities.

     Since the property unit trust management company manages, its activity is strictly controlled and regulated. First, the management company may manage mutual funds only under a license for activity on investment portfolio management issued by the competent authority in the person of the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Institutions.

     To the management company could not abuse of investors, thought separation of management tools from their storage. The funds of shareholders in another organization - the custodian, who not only keeps them, but also controls the legality of transactions with these funds. That is custodian oversees transactions involving assets of the investment fund and blocking assignments of the management company if they do not conform to established requirements, with immediate notification of the authorized agency, Management Company and other interested bodies.

     Register of holders of mutual fund shareholders, that is, who, when, how many shares bought and sold, leading registrar, which also has the proper license to register of holders of securities.

     Through this organization of mutual fund shareholders' money cannot "evaporate" or to be spent at the expense of shareholders. Value of the Fund may decline due to lower market prices of securities comprising the fund's assets, but the fund cannot "disappear". Even with the bankruptcy of the management company shareholders will not suffer as a mutual fund will be outsourced to another company.

     Also important is the solution to the issue of taxation. So, we have established the right mutual funds and equity investment funds to adjust the total annual income for the amounts of investment income received on the account custodian and those on board. At the same time provides for exemption of personal income from trading of mutual fund units and shares of joint stock investment funds from the taxation of personal income tax exemption and legal entities from taxation of dividends on shares of mutual funds and shares of joint stock investment funds to corporate income tax withholding.

     It is noted the following advantages of investment funds:

• Professional management. Asset management by licensed fund management companies have a staff of certified managers who make decisions based on the recommendations of professional analysts.
• Reducing risk through diversification of investments. Due to the fact that the funds accumulate large moneys from a number of private investors, the management company has an opportunity to diversify the fund's assets - it significantly reduces the risk of falling share value when prices fall, stocks or bonds of individual issuers.
• Transparency. Legislation defines the requirements for information about the investment fund, as well as responsibility for the content of their activities, indicators characterizing the composition and value of net assets of the Fund, including the dissemination or publication of inaccurate, incomplete or misleading information.
• High efficiency of investments. When investing in securities must have significant information and be able to analyze it (the analysis of macroeconomic data, financial performance of the company - issuer, technical analysis and so on). Most investors do not have enough time, technical capacity and expertise to manage their own funds. In such a situation the delegation of the problem of choosing investments and managing a professional manager is the best solution, leading to a significant increase in investment efficiency.
• Low operating costs. 
  Investment funds, due to the volume of attracted funds have relatively low operating costs compared to individual investors. Low operating costs positively affect the general result of the investment.
• Multi-tiered system of investor protection. Investor protection provided by the organizational structure of mutual fund, as well as control of the state. Management features, storage and accounting of the fund are divided among independent of each other bodies - the Management Company, custodians and registrars. The activities of these organizations, serving the funds, licensed and regulated by authorized body. 
  In Kazakhstan, from the subjects of the securities market interest in mutual funds is increasing. Given figuratively infancy of the law "On Investment Funds" - a little over a year, the number of investment funds in the country is small. However, the lack of economic literacy of the population is at present a serious obstacle for the development of integral ¬ investment fund. In Russia (President of the investment funds was signed in 1995, followed by a similar per2001 year) in the early years of mutual fund investment activity was not observed. At present, Russia has about 200 mutual funds, market their services sufficiently active, the volume, the most profitable (in comparison with other sectors of the financial market) and at the same time stable.

Thus, Kazakhstan has all the necessary conditions for investment funds and for the foreseeable future market investment but supplemented class investors. Among the banks whose deposits are now the most reliable and, therefore, practically the only financial instrument placement funds of the population, will soon be added and Mutual Funds, the rate of return which will be more attractive to the public. Time will tell the fate of the further development of investment funds, but, as international experience shows, the future they have.

Priority areas for investment in Kazakhstan 

• Infrastructure   
• Petrochemicals

• Chemical industry

• Metals and Metalworking

• Transportation and Logistics

• Engineering, including oil and gas machinery

 •  Construction Materials Production

• Wood industry

 •  Light industry

 •  Pharmaceuticals

 • Other non-commodity sectors of the economy

    Financing of investment projects carried out through four national institute of development: Development Bank of Kazakhstan, the Kazakhstan Investment Fund, the National Innovation Fund and the Small Business Development Fund. Kazakhstan Development Bank specializes in financing major projects.  
  Kazakhstan Investment Fund was created to provide financial support to private sector initiatives to create competitive industries in non-primary sector of the economy through participation in the authorized capital of newly created and existing enterprises.  

     National Innovation Foundation (NIF) - specializes in the financing of innovative projects and research and development, creating venture capital funds.  
  Small Business Development Fund specializes in the allocation of soft loans for small and medium-sized businesses.

     Means of development institutions that are intended to support investment, used to finance high investment projects, ensuring the creation of new jobs, new production, increasing output, improving quality and competitiveness of goods and services provided on a competitive basis in priority areas of non-oil sectors.  
  Principles of participation of development institutions in the investment projects are described in the documents governing the investment activities of these organizations: laws, memoranda, and investment returns.  
  Basic principles of participation of development institutions in the investment projects:  
  • Private sector initiatives - the development institutions are beginning to consider an investment project if bids from private companies.  
  • Cost effective - the applicant must submit a technical-economic substantiation of the project, which should indicate the financial, marketing, organizational, technical feasibility of the project.

 •  Compliance with industry priorities - the project should be aimed at not on the extraction of natural resources, financial services, real estate construction (these sectors are excluded from the priorities of development institutions in governing documents), and the processing and delivery of services with high added value.  
  • Own part of the applicant - the applicant must possess their own resources for the project in addition to the participation of development institutions (own participation capital, collateral, land, provision of raw materials, permits for the regulated activity, the presence of the management team, professionals)  
  • Non-controlling part of the development institutions - institutions of development includes up to 49% in equity, the primary responsibility and authority for managing the company bears the applicant - a private company.  
  • Recurrence - all investments undertaken by development institutions should be returned.  
  • Pay - investments carried out by institutes of development should take into account the increase in the value of these investments, which includes the time value of money, the value of financial resources of development institutions, the risks associated with the project and operating costs of development institutions.  
  • Urgency - the return on investment is carried out according to the stipulated agreement.  
  • The technological and industrial cooperation for projects overseas - projects abroad should ensure transfer of technology to Kazakhstan or to provide raw materials, goods for further processing in Kazakhstan.  

3. Problems and perspectives of the development of investment funds

     With the growth of domestic economy and the accumulation of private capital to the population began to offer new investment instruments that constitute an alternative to bank deposits. On the background of overheating real estate market and a severe shortage of investment instruments people’s interest in securities is visibly growing. This gives grounds for hope that the savings of the population will gradually be directed more towards the development of domestic business, rather than blowing a “bubble” in real estate or the support of foreign manufacturers of cars and luxury items.

     Nevertheless, at present a major role in supporting long-term initiatives of the private sector along with banks play a developmental institutions, large institutional investors and financial-industrial groups. More recently in the capital markets of Kazakhstan have begun to appear new “players” – private equity funds (private equity funds), which, unlike portfolio investors invest directly in real assets or obtaining control of the business (the acquisition of its controlling stake). Depending on the investment strategy of private equity funds can be of various types: from venture capital and start-up to buy out and mezzanine.  
The vast majority of private equity funds in the CIS countries are of the type “business development funds” or funds “middle stage”. Investment targets for these funds – companies that have worked well and which need additional capital to a new level. Development funds are characterized by medium-risk and relatively high yields, which makes them very popular. In the world there are vast amounts of such funds, they vary greatly in size, from tens of millions to many billions of dollars. In the CIS, the dimensions of such funds – from the tens of millions to two billion dollars.

     In the eyes of many companies, the recipient an important advantage of direct investment funds is that they provide capital, but leave the reins of power in the hands of owners and managers. This distinguishes them from strategic investors, who prefer to have complete control over the enterprise. Unlike banks, private equity funds do not require a deposit and fixed periodic payments, while providing access to its extensive connections, improving the strategy and tactics of business.

     What is the technology of the private equity fund? In general, it consists of a selection of investment projects, committing the transaction, work together to improve the capitalization of the acquired assets and exit the fund of direct investments from the project at a profit. So, after the signing of a cooperation agreement the company and private equity funds begin joint work on the implementation of investment projects and increase the capitalization of the company. Typically, the fund protects their interests through their representatives on the board, but possibly a broader representation in government. Any investor, investing in a private company, is a substantial risk – because such companies are not subject to scrutiny of exchange controls. The investor must be able to independently monitor the work of the company and affect its activity.  
For private equity interest companies that have the following properties, in descending order of importance:

       • The willingness of shareholders to cooperate;

     • top-notch management and a healthy corporate governance;

     • transparent and clear ownership structure and finance;

     • strong financial position;

     • a growing market and a growing market segment;

     • Availability of clear competitive advantages and opportunities for scaling;

     • Strategy development – a realistic and ambitious;

     • a clear business plan.

      The presence of the first six points – is necessary. Last two points are often finalized together in preparation for the investment.  
The size of the project should be adequately correlated with the size of private equity fund: as a rule, no more than 20% (sometimes up to 10%) and no less than 5-7% of the fund, while fund generally seeks to obtain a blocking minority stake investee company (from 25% to 50%). Sometimes, funds may acquire a controlling stake, but it is more the exception than the rule. The syndicate several funds usually act as one, and can jointly invest in projects that are for a fund is too large. Sometimes private equity funds acquire at least 25% of the shares, in which case they try to secure the blocking rules in investment agreements.

     Low standards of corporate governance.

      First of all, the problem of providing investors with regard to accurate, timely and reliable financial and operational information, as well as the lack of interest among managers to be accountable to third parties. Even under good circumstances, the relationship between investors and their management companies are complex, but in the absence of sound corporate governance conflict markedly worse. Especially the issue becomes problematic in the family business. Typically, an entrepreneur who built a successful business from scratch, not accustomed to reporting to external shareholders, the interests of the owner and the business are inseparable, and cash flows of the company are often confused with the family. This tradition of autonomy, lack of transparency and independence are deeply rooted in corporate culture of companies in most countries of the CIS and rarely violated only when acutely raises the question of raising funds externally.  
Many entrepreneurs, for example, have never been independently audited or introduce international accounting standards that require every professional investor. According to common practice, is a “double” or even “triple” Accounting for the minimization of tax payments, which complicates the task of the team conducting the «due diligence», in obtaining a reliable picture.  
Also, the companies often have problems in the form of legal proceedings or environmental violations, which investors will learn too late, ie A big problem is “skeletons in the closet. Many large companies have disguised subsidiaries, offshore transactions and other schemes for tax evasion. Even the desperate need for investment from outside is not able to overcome the resistance of managers to pressure foreign investors to conduct painful reforms necessary to increase transparency and improve the business value.

         Even the desperate need for investment from outside is not able to overcome the resistance of managers to pressure foreign investors to conduct painful reforms necessary to increase transparency and improve the business value.  
  It is not surprising that many equity fund managers in conducting a comprehensive review considered the most difficult to assess the level of competence and integrity of the initiators of the project partners.  
The problem of corporate governance do not lose relevance after the investments undertaken. An investor needs a regular flow of reliable financial and operational information to monitor the activities of the company and participate in making important decisions that affect future results. As a rule, the board of directors created a new structure with clear lines of authority between him and the executive. Nevertheless, minority shareholders are often faced with another reality, when new board members do not have sufficient authority to carry out the necessary solutions, and their use of the veto to block a controversial decision, paralyzing the activities of the company.

     Limited legal instruments to protect investors’ rights

     The problem of weak corporate culture compounded when the legal system does not provide a reliable mechanism for conflict resolution. Throughout the world, well-written and executable legal instruments provide the basis for all financial transactions. Typically, financiers, bankers, or whether direct investors usually have little control over firms in which they invest, and strongly depend on the legal system that protects their rights.

     Investor protection is relevant at all stages of the investment process: the placement of newly issued shares to investors, participation in company management and disposition of shares in the company. Investment agreements usually do not contain many of the necessary from the standpoint of investors’ positions, as their performance in terms of Kazakhstan’s law is impossible or considerably hindered.

     In particular, the powers of government business entities regulated by domestic legislation in a rather tough, peremptory manner. So, in joint stock companies cannot set specific, not provided for by law, the classes of shares with differing rights management company. Rigidly fixed quorum of the general meeting of shareholders. In the joint stock company cannot change the statutory percentage of votes required for adoption of a decision. Not envisaged by the legislation the possibility of transferring some issues for consideration by the committees and commissions formed by the shareholders or members.  
In general, private equity investment experience has shown that, regardless of literacy to enter into agreements fixing the conditions and circumstances of the relationship between investors and companies, there are limited legal leverage in the event of disagreement with company management. Insufficient protection of shareholder rights and the negative experience of being in a minority shareholder often force fund managers to change investment strategy towards the acquisition of a controlling stake.

     Non-functional capital market

     Every aspect of the investment of private capital is determined by the need to provide a profitable outlet in a certain period of time. In developed countries like USA and UK, a well-functioning IPO market provides the fundamental conditions for the successful existence of the entire industry of private equity. Without a reliable option out of the IPO market for the fund are limited to repurchase shares of the initiator or management (management buyouts), selling to a strategic investor or a financial investor who specializes in the final stages of development.  
According to most empirical data output, implemented through the IPO, provides a greater increase in the value of the company, rather than through the alternatives, such as a sale to a strategic investor or back to the initiator of the project (through the management buyout). For example, in U.S. venture funds earn an average of 60% per annum, when exiting through IPO, and 15% - when to sell a stake to private investors. In addition, IPO – a sort of “seal of quality” business, financial transparency and a high level of corporate governance. The fact of the success of the IPO increases the capitalization of the company and improve its reputation. Of course, the withdrawal of the company’s IPO – not an easy task, and subsequent exit from the fund company should be made carefully so as not to derail the course of shares traded.

     In Kazakhstan, as in many emerging markets, primary market functions as a tool for raising capital for a small number of large companies, and in the secondary market is dominated by an even smaller number of large firms. Low market liquidity and scanty volume of transactions, lack of interest the general public to exchange transactions, and excessive volatility of quotes do not give the Kazakhstani securities market sufficiently attractive to potential domestic issuers.

     Low market liquidity and scanty volume of transactions, lack of interest the general public to exchange transactions, and excessive volatility of quotes do not give the Kazakhstani securities market sufficiently attractive to potential domestic issuers.

      As for the prospects of private equity investors in Kazakhstan, in my opinion, despite all the difficulties, we can expect their rapid development in the near future, as gradually creates the necessary preconditions for this: the accumulation of private capital, the growing number of qualified personnel, the development of corporate culture improvement of legislation to protect minority shareholders’ rights, the development of RFCA and the weakening of the tax burden on transactions with securities. The state should be interested in the development of private equity funds, as they contribute to the qualitative and quantitative economic growth. Private equity funds invest in businesses based on the most effective technologies and best standards, and indirectly affect the entire industry, forcing suppliers and competitors also raise their efficiency and business standards. Not accidentally, in the U.S. there is a law under which pension funds can be sent to private equity funds, including venture capital funds, dealing with new technologies, up to 1% of its assets. In addition, the same is a multibillion-dollar U.S. government program to support private equity investments, primarily of the same venture.