HOW TO SET UP A GIBRALTAR EXPERIENCED INVESTOR FUND

Transcription

1 HOW TO SET UP A GIBRALTAR EXPERIENCED INVESTOR FUND [2 nd Edition, June 2013] When taking the decision to establish an Experienced Investor Fund ( EIF ) in Gibraltar, various matters require consideration. Gibraltar is one of four EU specialist fund jurisdictions and the Government of Gibraltar has recently announced that it is set to transpose into Gibraltar law the EU Directive (2011/61/EU)on Alternative Investment Fund Managers (the Directive ) ahead of the 22 nd July 2013 deadline for implementation by Member States. These notes have been revised to provide an updated guide on matters to be considered on establishing a Gibraltar EIF post 22 nd July 2013 and also having regard to the Corporate Governance Code for Collective Investment Schemes recently published by the Gibraltar Funds and Investments Association. Structure of the Fund Will the EIF be in-scope the Directive and how might the EIF be affected by other regulatory obligations in other relevant jurisdictions? As from 22 July 2013, all collective investment schemes (not being UCITS) will be classified as Alternative Investment Funds ( AIFs ) for the purposes of the Directive, either as EU AIFs or as Non- EU AIFs. The Directive focuses on the Managers of Funds as opposed to Funds themselves and creates a regulatory and supervisory framework for Fund Managers (AIFMs). AIFMs must submit applications for authorisation under the Directive within 1 year from 22 July Once authorised under the Directive, AIFMs will benefit from a pan European passport to manage and market AIFs throughout the EU*. If an AIF does not have an external Manager and its legal form permits internal management (i.e. self-management of investments by its board of directors), the AIF itself becomes an AIFM for the purpose of the Directive. The Directive has exceptions for small AIFMs and the exceptions also apply to self-managed AIFs. The exceptions apply where AIFMs (or self-managed AIFs) manage investment portfolios of AIFs (directly or indirectly) whose assets under management do not exceed a threshold of 100 million (leveraged) or 500 million (close-ended, unleveraged). Small AIFMs are subject to a lighter touch regime and must register with the Gibraltar Financial Services Commission ( FSC ), provide the FSC with information on the main instruments in which the AIFM is trading and on the principal exposures and most important concentrations of AIFs that it manages. The information must be sufficient to enable the FSC to monitor systemic risk effectively. Small AIFMs can, however opt in to the provisions of the Directive applicable to in-scope AIFMs. 1

2 In-scope AIFMs have until 22 July 2014 to bring their operations in line with the Directive and are required to comply with the various obligations set out in the Directive. Whether or not the intended EIF will be in-scope the Directive therefore needs careful consideration from the outset as do other regulatory obligations which may apply and restrict, for example, marketing of the Fund in other jurisdictions, the ability of the Fund to trade in securities, the ability of brokers and other counterparties to extend credit, etc. The regulatory environment worldwide impacting on Funds generally is changing and evolving, for example the U.S. Foreign Account Fax Compliance Act which on and after 1 January 2014 will require non-u.s. financial institutions to identify and disclose their U.S. members or be subject to a 30% withholding tax on all U.S. sourced income. * Attias & Levy will be pleased to provide further information in relation to the FSC authorisation process for Fund Managers under the Directive and for self-managed Funds which themselves may require to be authorised as AIFMs under the Directive. What type of vehicle is most appropriate? One-off [stand alone] Fund - type of vehicle - usually private limited company or limited partnership; Multi-portfolio structure - type of vehicle - usually either Protected Cell ( umbrella ) company ( PCC ), where cells hold similar assets but for different investors or with different strategies (e.g. one cell for capital growth, one cell for income, etc), where similar assets are held but each cell is denominated in different currencies or where different types of assets are held for the same investors, or series of related or side by side vehicles; Master/feeder fund - if the EIF is intended to be promoted to separate categories of investors e.g. U.S. taxable investors and non-us taxable investors or EU investors and non-eu investors type of vehicle - usually private limited company, limited partnership or PCC. How will shareholdings be structured? It is common for there to be at least two classes of shares of the Fund, management shares and participating shares. The management shares are usually held by the Promoter and have voting rights, but do not participate in profits, whilst the participating shares are issued to investors, are non-voting but are entitled to participate in profits. Investors EIFs can only be marketed to institutional or sophisticated investors, defined by Gibraltar legislation as experienced investors. The term experienced investor has a wide definition which includes investors subscribing for a minimum amount of 100,000 who are deemed to be experienced, persons who invest a minimum amount of 50,000 provided they have been advised by a professional regulated adviser and the Fund s Administrator is satisfied that such advice has been given and professional clients, as such term is defined under MiFID. Note: Only UCITS Funds may be offered to retail clients and, unless entitled to market pursuant to the pan European passport (in which case applications for subscription can still only be accepted from experienced investors ), EIFs must be marketed strictly on a private basis to experienced investors and in compliance with private placement regimes in each jurisdiction concerned. 2

3 Registration Gibraltar legislation offers a choice of registration process. An EIF can file for registration with the FSC either 10 days before or 10 days after establishment of the EIF. Provided that the necessary input is given by promoters and intended service providers so that all documentation has been prepared having regard to pertinent Gibraltar legislation and regulatory expectations, EIFs are fast to establish. In practice the usual time-frame is approximately 8-10 weeks. The name of the Fund requires FSC approval and the name is expected to reflect the investment strategy. When applying for name approval, the FSC requires brief details of the Fund s investment strategy/objective, the identity of the proposed service providers, the identity of the promoters/principals, proposed launch date and whether the Fund is to be an open or close-ended structure. How does the Directive affect registration? Small AIFMs for both self-managed EIFs and EIFs which have appointed an external investment manager which fall within the exceptions stipulated under the Directive, a lighter touch regulatory regime will apply and the EIF must be registered with the FSC (see above under heading Structure of the Fund ). In-Scope AIFMs for all EIFs which are not small AIFMs (both self-managed and EIF s having an external investment manager), and the Directive provides that Gibraltar is the home or host Member State, the AIFM (once authorised under the Directive) must submit a notification to the FSC in respect of each Fund that it intends to market and, within 20 days, the FSC must inform the AIFM whether it may start marketing the Fund. Directors and Corporate Governance The Fund will require at least two Gibraltar resident directors licensed by the FSC to act as directors of EIFs ( EIF Directors ). Gibraltar s EIF regime is designed with expectations of a high standard of corporate governance. The board of directors of an EIF are required to oversee the Fund and its operations. The FSC expects EIF Directors to demonstrate this. Indeed, all directors of an EIF must understand the nature and the perceived risks of an EIF s underlying investments and how the board ensures compliance with the objectives of the Fund. In cases where the EIF Directors may not have expertise in particular underlying investments, they are expected to ensure that there are other directors or advisory bodies who provide recommendations/advice to the board. EIF Directors are required to report to the FSC promptly any potential or material function failure which could have a significant impact on the Fund. Conflicts of interest must be documented and managed by the board of directors and if an EIF Director is also the director or linked to another service provider of the Fund, the Fund s Offering Document should identity the potential conflict. EIF Directors should also ensure, particularly in the case of open-ended investment Funds, that they have a process in place to monitor the liquidity of the Fund; this should include oversight of subscriptions and redemptions as well as changes in underlying assets. The Gibraltar Funds and Investment Association ( GFIA ), of which Attias & Levy is a member, has recently published a Corporate Governance Code ( Code ) for all Funds, whether they be EIFs, private funds, unit trusts or other collective investment scheme entities. The Code is strongly recommended by GFIA and by Attias & Levy. The FSC endorses and supports the adoption of the Code by the directors of all Gibraltar Funds. Attias & Levy therefore encourages promoters to have regard to the Code and the manner in which it is to be adopted and complied with at an early stage when considering the establishment of an EIF. 3

4 The board of directors, including the EIF Directors, should therefore be chosen with care and having regard to - high standards of corporate governance, independence, skill and expertise, the investment strategy of the Fund, whether or not the board itself will manage investments or appoint an Investment Manager, etc. Fund Administrator An EIF is required to appoint a Fund Administrator which may be either a Gibraltar licensed Administrator or a selected non-gibraltar Administrator. There is currently a choice of eight Fund Administrators authorised by the FSC in Gibraltar. Gibraltar also permits the appointment of non- Gibraltar Administrators to allow brand-name and foreign administrators with sufficient reputation and substance in their home territory to serve as Fund Administrators of EIFs if they have been approved to so act by the FSC and a Government Minister. Insofar as the substance of a foreign administrator is concerned, it has recently been announced that a foreign Administrator will usually automatically meet this criteria if it is has assets under administration which exceed 2 billion. The ability to appoint a foreign Fund Administrator is expected to attract interest from those wishing to establish a Fund in an EU jurisdiction but retain the services of their existing reputable non-eu Administrator with whom they may have a long-standing relationship. Investment Manager It is not compulsory to appoint an Investment Manager as the board of directors of an EIF may make investment decisions and manage investments on behalf of the EIF. However, in either case, regard must be had to the Directive (see above under Structure of the Fund ). Depositary All EIFs in-scope the Directive must appoint a depositary. Closed-end EIFs not in-scope the Directive are not required to appoint a Depositary. If a Depositary is appointed, it must be a different entity from, and independent of, the Administrator. Auditor Financial statements of an EIF require to be audited by an Auditor approved under the Financial Services (Auditors) Act. Legal Advisers As part of the process for the establishment of an EIF, a Gibraltar lawyer who is independent of the Fund Administrator is required to confirm to the FSC that the Fund complies with the relevant legislation. The Legal Advisers will be responsible for establishing the Fund, drafting and preparing the various documents, including the Offering Document or Private Placement Memorandum 4

5 ( PPM ) (with input from other service providers and promoters where appropriate) and the material contracts with the Fund including Service Agreements. Tax advisers may also be consulted. Bank Account(s) Where operating client accounts, dual signatories are required. Permissions on bank accounts should be considered by the board of directors and, for example, the principal should not be permitted to sign solely. The PPM The PPM must conform to the EIF legislation which adopts industry standards and conform to the Directive where the EIF is in-scope. In particular, the PPM should contain details of: The identity of all the Fund s service providers, their duties, experience/expertise/ qualifications (where appropriate), regulatory status and the manner in which they may be removed; How material changes will be notified to investors (setting out the types of changes which necessitate prior approval of investors and instances where investors are only required to be notified of changes); The Fund s investment strategies, clearly set out and providing sufficient detail to enable an investor to determine what the Fund is investing in and underlying assets. This should include time horizons, the manner in which the Fund will ensure that its investment goals are achieved and who is responsible for managing the investment activity; How breaches of the Fund s investment limits will be notified to investors and the FSC; Potential conflicts of interest and any mitigation in place and instances of common directorships or links between the different service providers; Potential risks which should be specific to the Fund s investments; Calculation of NAV. The FSC expects that Funds ensure compliance with IOSCO principles of valuation at all times and the value of underlying assets of a Fund should be independently verified through, for example, the use of Bloomberg or independent valuers. Details of the pricing process should also be provided. The process for major errors should be described and, if compensation is offered, details of how this would be calculated should be included; and A statutory form of investment warning must be included in a prominent position within the PPM. Minimum Fund Size Although no prescribed minimum, the size of an EIF would not usually be less than 10 million. Due Diligence Usual KYC and verification of funds is required. 5

6 Fees An accurate indication as to fees can only be given on a fund-by-fund basis having regard to the intended structure. The table below sets out an indication of average fees. Fees may be higher for EIF s which are in-scope AIFMD: Service Provider Start-up Ongoing Legal Adviser (Fees depend on complexity and quality of input from service-providers and promoters) 12,500 1,500 EIF Directors (Indication of fees given on per EIF Director basis [min 2 required] and depend on volume of work. Start-up fee usually required at outset. EIF Directors would expect Fund to provide adequate D&O insurance cover) 5,000 10,000 Fund Administrator (Dependent on volumes and type of fund. Fees may either be fixed or charged on an ad valorem basis) 2,000 12,000 Fund Secretary 2,000 2,000 Investment Manager [if the EIF board is not managing investments usually charged on management/performance basis and can vary depending on the type of investments and volume] FSC Application Fee (not including AIFMD applications) 2, Attias & Levy will be pleased to provide further information in relation to AIFMD generally. First Floor Suites, 39 Irish Town, Gibraltar Tel: Fax: E-m: ch@attlev.gi 6