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Gibraltar: The Alternative Funds Jurisdiction

1024 711 Fiduciary Management

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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

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.

Article

sum of its parts

Malta: Fund Distribution Is The Sum Of Its Parts

1024 573 Ken Carmody, Finscoms

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Fund distribution plays an enormous role in the success of an investment fund. But what often overlooked elements play an enormous role in successful fund distribution? The answer is fund marketing and fund communications.

Strong marketing and communications strategies create strong distribution. Cut distribution open and it bleeds marketing and communications. Most asset managers refer to fund distribution as fund marketing but it’s vital to differentiate and understand each component.

Fund Marketing
Traditionally, fund prospectuses are seen as the main way to reach the investor by fund managers. And often oblige by sending out large, bland, monotonous and indigestible documents. On average, institutional investors receive 45 prospectuses a quarter and 10% receiving more than 100. Only 15% of these get passed the initial filtering stage. Less than 0.2% are actually successful in attaining investment. Pdf’s are being ripped from emails by many company firewalls and the hassle for the investor to have the pdf released becomes another boundary to penetration. Is it any wonder we are starting to hear slogans such as ‘Death to Pdf 2016!’ and ‘We are pdf deaf!’. In this post AIFMD world using ‘push’ marketing across global markets is an expensive way to attain very low penetration.

To overcome you must adapt. A dynamic fund marketing strategy will steer the fund toward reverse solicitation, inbound rather than push marketing. Spray and pray marketing is not effective. Those achieving the highest rates of penetration now rely on a strong brand and make the most of their marketing assets such as their website and reach prospects through video, webinars and social media. Many funds build a website on the premise that ‘my competitors have one so I got one’. The function of the website must be addressed. It can be a revenue generator, a communications tool, a value add to clients/investors. Asset managers are adopting social media as regulatory groups recognise it as suitable means to communicate. Social media can help create communities, promote without bombarding, become a thought leader or a subject authority.

Fund Communications
A fund is required to put out communications to stakeholders to satisfy fiduciary, regulatory and legal obligations. You don’t have to see this as an administrative drudge; a fund can use these obligations to strengthen your relationship with the investor and other parties. Change communications strategy regarding compliance to an open, transparent and well designed communication to investors. For example, with 54% of investors unhappy with the level of provided transparency compared to 78% of fund managers who believe they provide enough, create competitive advantage by addressing this clear disconnect. Speak the investors’ language, let them see how well the fund is being managed and see the relationship solidify. There is plenty of scope for this:

  • NAV publication
  • Meeting requirements in relation to Key Investor Information Documents (KIIDS) being provided to investors before they invest in a UCITS
  • Publication of semi-annual and annual financial statements
  • Shareholder notifications
  • Notices for Shareholder General Meetings
  • Key performance indicators such as investment performance versus benchmark

The fund’s message must be consistent across all mediums to avoid confusion and keep focus on the core message. The smart fund manager will deliver messages about updates and services through social media, the website, intranets, extranets. It is advisable to communicate regularly and stay in line with the investment philosophy and the strategy of the firm, this helps provide a ‘true to label’ comfort level for the client/investor. At all times funds must ensure that their communications are fully compliant.

Fund Distribution
The asset manager’s distribution strategy should include fund marketing, fund communication, knowledge of distribution channels and regulation.

Knowledge of the distribution channels per targeted jurisdiction is of course vital for building an effective distribution strategy. Each market differs from the next in terms of public offering listing, regulated public distribution, private placement, local distribution networks, regulatory requirements and more. The distribution network is still viewed as complex and somewhat opaque. A fund should make sure to complete full due diligence on the distribution network and on would be distribution partners. It is essential that the transfer agent and distributor used have solid know-your-customer and anti-money laundering procedures. From there the fund needs to grow a strong relationship with the local distributors and agents on a business and operations level.

Complying with local regulatory requirements is an area that needs constant supervision as regulations are constantly changing. Asset managers working with fund lawyers will need to get to grips with regulatory requirements on local agents, eligibility, investor disclosure, registration and continued registration, and marketing.

An adept asset manager will be looking at what the future holds for the industry and will have the fund prepared. For the near future in the asset management sector we can see the following:

  • An almost complete move from the traditional style of marketing to digital marketing. And the ‘Death of PDF’ in 2016.
  • An even greater evolution of fund products to match investor demand
  • The emergence of new distribution channels
  • The wide use of video to engage prospects taking into account the IT savvy nature of the ‘next generation of investors’

In Summary
Fund distribution is not complete without fund marketing and fund communication. These two components are often neglected and can result in the fund making a negative impression unbeknownst to the fund manager. In a congested sector, of over 25,000+ funds, investing in marketing and communication post AIFMD is critical. It is no coincidence that the most successful funds have strong brands and use communication strategy as a competitive advantage. Having a strong brand and identity helps strengthen the trust between investor and the fund. Strong communication strategy strengthens the relationship between the investor and the fund. Thus building a solid platform to increase the reach of fund distribution.

Finance

Malta Launches a New Investment Fund Structure – the Notified AIF

1024 683 Amicorp Fund Services

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The Malta Financial Services Authority (MFSA) has recently announced the launch of a new framework applicable for notification of Alternative Investment Funds, the Notified AIFs, which will be promoted to qualifying or professional investors.

The AIFs falling within the scope of the notification process shall be managed by a full-scope AIFM. The Notified AIF is not authorised or in any way approved by the MFSA. In addition, Notified AIFs will not be subject to ongoing supervision. The MFSA shall make available and maintain updated on its website a List of Notified AIFs in good standing. The MFSA is separately assessing the licensing process for funds, particularly the Professional Investor Funds, currently licensed under Maltese law.

The Notified AIF can be established as any structure allowed under Maltese law and the AIFM will assume full responsibility for the Notified AIF and for the fulfilment of the obligations of the Notified AIF. EU/EEA AIFMs may submit a notification to the MFSA for an AIF to be included on the List of Notified AIFs. Third country AIFMs will be able to submit a request for notification of an AIF once the country where these have been established has been granted passporting rights pursuant to the AIFMD.

The process of notification of AIFs will be available to Collective Investment Schemes which are not already in possession of a licence issued by the MFSA in terms of the Investment Services Act. The MFSA will be publishing a list of documents required, together with a proforma prospectus template, to be submitted as part of the notification process of the AIF. Within 10 business days from the date of filing of a complete notification pack, the MFSA will proceed to include the AIF in the List of Notified AIFs.

The MFSA expects to start receiving requests for inclusion in the List of Notified AIFs from around the middle of the second quarter of 2016.

Isle_of_Man

Second Citizenship – Is the Isle of Man an Option?

720 1024 Abacus

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Second citizenship programmes can now be found in many different jurisdictions; they started in the Caribbean in the seventies to boost local economies and provided clients with visa free travel to certain countries.

Citizenship programmes have evolved and spread across the globe, the Caribbean islands compete with each other and more recently with some Pacific islands offerings.

European jurisdictions have arrived on the scene with higher investment levels, but with the ability to obtain an EU passport as the ultimate prize.

Each jurisdiction offering second citizenship has its own merits and pitfalls. Clients seeking second citizenship need to be interrogated as to their aspirations and reasons for desiring a visa from a country that they were not born in and may never have lived in before. Their reasons will be varied, but a common aspect is to have a safe haven to reside for themselves and their families should they ever need it at short notice.

The UK has a well-known Tier 1 Investor and Entrepreneur Visa programme which enables investors to live and work in the UK for varying amounts of investment into the UK economy. Visas are grated for an initial period of 40 months, after which a 24 month extension can be applied for and after 5 years a successful applicant can apply for indefinite leave to remain. One year later they can apply for citizenship and obtain a British passport.

The Isle of Man operates the same Tier 1 Visa programme and the rules for applying in the Isle of Man are similar in most respects to the UK. The Isle of Man has until very recently not promoted this route for foreign nationals to legally live and work on the Island, but with the market for second citizenship programmes becoming ever more popular but competitive the Isle of Man has something a little different to offer.

Such as:

Isle of Man resident companies are taxed at zero percent, with the exception of banking and large retail outlets being taxed at 10 percent and companies profiting from land and property in the Isle of Man 20 percent.

To qualify for indefinite leave to remain, in the Isle of Man, an individual must be resident in the Isle of Man for a minimum of 185 days in each year. However, time spent with valid leave in the UK or The Channel Islands is not considered an absence.

There is also the possibility for Investor visa applicants to potentially invest in a much wider context than those applying through the UK.

If indefinite leave to remain is granted and all aspects of an application are met, a British passport can be obtained.

Like many jurisdictions the Isle of Man needs to increase the economically active population of the Island, which has historically been open to foreign nationals living and working within its shores. 70 different nations are currently represented here and this is something that the Island has a political desire to continue.

A new Enterprise Development Scheme (EDS) has been launched which is an Isle of Man Government financed £50m fund established to encourage new start-up business, accelerate existing businesses and to relocate business to the Island.

The Tier 1 Immigration Rules are being updated and one of the most recent developments is that if a Tier 1 Entrepreneur applicant can secure a minimum of £50,000 investment from the EDS then the usual £200,000 requirement for the visa is no longer necessary. This would allude to the fact that the immigration department in the Isle of Man would no longer need to review the business as an appropriate business for the purpose of the granting the visa.

This is the latest development and will not be the last. The Isle of Man is certainly open for business, it has the infrastructure, it has a supportive Government, and it has a British way of life and is one of the safest places to live within the British Isles. London, Belfast, Manchester and Liverpool are easily accessible with excellent travel links and of course we have a very favourable tax regime.

So is the Isle of Man an option for second citizenship? If you are an entrepreneur looking to set up a fintech or biotech business or if you are an investor and would like to bring your children up in a friendly safe island environment then the answer is simply yes, it is definitely an option that should be high on the list of considerations.