Gibraltar: The Alternative Funds Jurisdiction
The significant global expansion in the Funds Sector has exerted considerable pressure on established Fund centres. Gibraltar has been proactive in attracting Fund business by enacting specific legislation for the setting up of Funds quickly whilst maintaining high professional and regulatory standards.
Gibraltar has a high quality infrastructure in that it has major international banks, accountancy firms and skilled financial services professionals and lawyers who are able to service the Funds industry. Gibraltar offers very high standards and, being a small jurisdiction, it is able to provide such services at competitive rates. All of the above makes Gibraltar an increasingly attractive Funds location. Whilst Gibraltar can offer numerous types of Funds to suit your needs, the main focus of this paper is to provide information on the establishment of a Private Scheme and an Experienced Investor Fund in Gibraltar.
Private Funds have proved to be very popular in Gibraltar. These are permitted under section 6(3)(c) of the CIS Act, provided that the scheme is promoted in accordance with, and is permitted by, the CIS Regulations. The CIS Act refers to Private Funds as “Private Schemes” and, in essence, these are collective investment schemes that are not listed on a stock exchange and are limited to no more than 50 participants.
Private Funds are unregulated and are not required to register with the Gibraltar Financial Services Commission (“FSC”). This allows private schemes to be established cost-effectively and quickly. There are no statutory investment restrictions but Directors must follow the investment objectives of the Fund as set out in the Fund’s offering documentation.
It is common practice in Gibraltar to establish a Private Fund as a Gibraltar limited company with two share classes: ordinary shares (the “Ordinary Shares”) which have voting rights but negligible economic rights with regards the investments made by the Fund, and preference shares (“Preference Shares” or “Participation Shares”) which are valued in accordance with the investments made by the Fund but have limited voting rights.
A Private Fund can be structured as an open-ended or closed-end Fund, although in the case of property closed-end is recommended. The Directors are obliged to make certain disclosures to investors regarding the operations of the Fund and this is best done through a professionally drafted offering document. An offering document will set out how the Fund will operate, the various parties involved, the investments the Fund intends to make and the risks involved in investing in the Fund. This will allow potential investors to make an informed decision when considering investing into the Fund.
A Private Fund does not require an audit, Custodian, FSC license or FSC-licensed Directors. Therefore it is substantially cheaper to create and operate compared to an Experienced Investor Fund (EIF).
Experienced Investor Funds (EIFs)
The Gibraltar Experienced Investor Funds regime was launched on 5 August 2005 with the publication of the Financial Services (Experienced Investor Funds) Regulations 2005.
The EIF offers many benefits in terms of ease and speed of set-up as well as a great degree of flexibility for investors. Both Promoters and Administrators can use Gibraltar’s investor friendly EIF legislation to set up Hedge Funds or Funds that can use hedge strategies in an easier and cost effective way for private clients and for external asset managers. To license a new Experienced Investor Fund, the Fund’s administrator must notify Gibraltar’s FSC within 14 days of its launch and supply the Fund’s offering documents and an opinion from counsel stating that the Fund complies with local EIF Regulations. The effect of this is that an EIF can be set up in a matter of days. An EIF must have two Gibraltar-resident directors who have been pre-approved by the FSC and a Gibraltar-based administrator and auditor, as well as a custodian or prime broker who does not have to be based in Gibraltar.
An Experienced Investor under the Experienced Investor legislation is a person or body who, at the time of the investment, falls into one of the following categories:
A. A person or partnership whose ordinary business or professional activity includes, or it is reasonable to expect that it includes, acquiring, underwriting, managing, holding or disposing of investments, whether as principal or agent, or the giving of advice concerning investments;
B. A body corporate which has net assets in excess of Euro 1,000,000 or which is part of a group which has net assets in excess of Euro 1,000,000;
C. An unincorporated association which has net assets in excess of Euro 1,000,000;
D. The trustee of a trust where the aggregate value of the cash and investments which form part of the trust’s assets is in excess of Euro 1,000,000;
E. An individual whose net worth, or joint net worth with that person’s spouse, is greater than Euro 1,000,000, excluding that person’s principal place of residence; or
F. A participant who invests a minimum of Euro 100,000 in the Fund.