Gibraltar will have been represented at nine major funds events in seven international cities in 2014 – twice the number attended last year – to promote the jurisdiction as the best EU-gateway to Europe with rapid regulatory approval of funds
The Alternative Investment Fund Managers Directive (AIFMD) introduced last year, but which came fully into force mid-July, is set to bolster EU fund jurisdictions such as Gibraltar, that are able to offer foreign fund managers access to the whole of Europe.
The EU-wide AIFMD provides for monitoring and supervision of risks posed by alternative investment funds, including hedge funds, private equity funds, and real estate funds.
“In this new environment, with significant opportunities available to professional, focused jurisdictions, Gibraltar has positioned itself to maximise business opportunities under AIFMD”, pointed out James Lasry, Gibraltar Funds & Investment Association (GFIA) now-retired chairman.
For funds being established now, “or funds that wish to continue to market in the EU – particularly those wishing to market in Germany, France, Italy and the Netherlands, where the private placement regimes have been substantially restricted – they will have to consider a European onshore option and, depending on size, AIFM-compliant
structures,” said Jon Tricker, Partner at Deloitte (Gibraltar).
Moves by Gibraltar lawyers, accountants and other financial intermediaries to attract funds business have been in place for the past few years, but the number registered as Experienced Investor Funds (EIFs) remains doggedly below 100 – small beer by comparison with other main competing centres such as Malta, Ireland and, particularly, Luxembourg.
As Joey Garcia, acknowledged fund expert at law firm Isolas, explains, that the near-static number does not signify inactivity. “Some funds have been completed or been unable to reach investment targets, whilst other funds have been launched in their place”, he said. A couple of funds have recently relocated to Cayman Islands, to avoid AIFMD reporting requirements for funds with over £100m assets.
“But I agree the full potential growth has not yet been realised; the AIFMD is a positive event for us going forward,” Garcia remarked. He and Lasry point to government investment – “time, effort and resources”- in funds promotion at an expanded and renamed government-funded Gibraltar Finance.
The boost in jurisdiction visibility at global funds events in Paris, Hong Kong, Geneva, Monaco and London this year, contrasts sharply with a previous relatively low-key international presence, and begins to match the efforts made by Guernsey and Malta, for example.
Philip Canessa, Gibraltar Finance Centre funds marketing specialist believes the territory is “in an excellent position” to experience growth, after its dedication to implementation and preparation of regulations like AIFMD.
To make The Rock more funds friendly, the government in 2012 cut by half, requirements for individuals to qualify for investment in EIFs. Last year Gibraltar altered legislation permitting large funds to register locally, but still use their preferred administrators in other well-regulated jurisdictions and earlier this year made changes to the Companies Act to assist administrators reporting changes in shareholder / investor ownership.
In early May, 27 fund managers new to Gibraltar attended a London briefing by lawyers, Hassans and accountants, Deloitte (Gibraltar), as part of a series of joint promotional events in addition to those with the Finance Centre. The fund managers had been identified as likely soon to structure new fund offerings; within days two planned to find out more.
Fast to market
However, Hassans funds specialist partner Lasry, revealed: “It’s a struggle to get the attention of fund advisors, because they keenly support Cayman Islands that they know well, unlike fund managers, who are much more open to Gibraltar possibilities.
“I think we have the most competitive offering for AIFMs in Europe, if they had to find a European jurisdiction in which to put funds instead of Cayman Islands. Those based in London we hope will consider Gibraltar because it is close – culturally, legally and regulatory – to that in Cayman, and in addition, we offer the quickest to market in Europe,” Lasry asserted.
Feedback from Invest’tour Gibraltar, a first-of-kind 2-day seminar attended by 48 Swiss wealth management investors in April revealed “attendees were especially impressed by the mood that prevails in the territory – very much business oriented and solutions driven”, according to organiser Voxia Communications senior partner, Alexandre Bonnard.
Few attendees had previous knowledge and experience of the territory, showing “that more could be done in terms of dedicated communication towards the Swiss financial intermediaries and independent advisors and asset managers”, Bonnard told Gibraltar International. A follow-up event is planned for later this year.
Swiss move symbolic
Garcia revealed: “At least two serious Swiss enquiries concerning establishment of investment management firms have been received” with high expectation they will shortly progress. “It won’t be a huge change to our market, but it is symbolic of Swiss firms seeking to become regulated for marketing in Europe,” he explained.
There are ten Gibraltar licensed fund administrators with some £3.7bn of assets in around 218 local and foreign funds, but with sub funds – separate cells with the impact of each protected from each other – the number rises to around 250 funds.
Gibraltar Finance Centre in April joined Europe’s industry elite at EuroHedge Summit in Paris which “was very good, because of the seriousness of the managers represented – top Euro managers – which some might argue are too big for Gibraltar, but we were surprised at how many delegates showed interest in our offer”, Lasry reported.
“They may not have wanted Gibraltar for a fund now, but they may well find us suitable in the future. Rather than looking to Luxembourg, they will get from Gibraltar both a lot better service and access to the Regulator for speed of processing applications, as well as a cost advantage.”
Nicola Smith, CEO of Helvetic Fund Administration Ltd, which manages 80 funds in the Cayman and British Virgin Islands, as well as Gibraltar. The company became the first licensed Gibraltar funds administrator in 1998, and holds a similar position in Malta.
Smith notes that whilst Ireland and Luxembourg offer similar tax advantages to Gibraltar, those jurisdictions lose on the grounds of difficulty in getting funds established.
“Dublin is saturated with funds and the process of launching a fund with regulatory approval there can take up to a year and in Luxembourg it can be even more problematic, because of the cost – both jurisdictions are way more expensive – and, basically, they seem to be interested only in very large funds”, she said. “Malta offers an underlying structure for funds similar to Gibraltar’s EIF, but it can take six months to get regulatory approval.”
Surprise review of key fast-to-market process
Gibraltar’s Financial Services Commission (FSC) chief executive, Samantha Barrass is looking again at the key Experience Investor Fund (EIF) process that allows funds to be pre-authorised by industry professionals.
The EIF regime means funds can be launched within just ten days of its application submission unless the FSC spots something amiss, enabling the jurisdiction to market itself strongly on an internationally competitive ‘fastest to market’ basis.
However, it’s a process the regulator regards as “very unusual”, because the prior approval is of licensed EIF Directors only – there are 90 listed as ‘active’ at present; the FSC registers the fund “after it is up and running”.
Gibraltar Minister for Financial Services, Albert Isola, emphasised: “I don’t think there is any chance that the pre-authorisation of funds process will be disturbed, but if we can improve on it, then that is only right.
“Do not be surprised by the approach being taken by Samantha Barrass; it is entirely within her scope to review the process – she has a duty to consider and to review the EIF process”, he told some 200 people attending the Gibraltar Funds & Investment Association (GFIA) 2nd annual dinner at end-May.
Nevertheless, retiring GFIA chairman James Lasry, admitted: “The new Regulator’s remarks have caused a bit of a stir, but they have been received by the industry positively. We regard our ability to launch funds without prior FSC authorisation as a privilege, not a right and we always flag up to the Regulator anything that is of an unusual or different nature.”
Around 10% of Gibraltar’s nearly 200 EIFs and EIF sub funds are believed now to be causing the FSC team some concerns, Gibraltar International understands. The regulator has been worked in recent months with EIF directors in funds considered ‘problematic’. “We are looking at new and existing funds and whether we have any concerns,” Mrs Barrass revealed.
As a result, she explained to the FSC industry-based funds panel in June how the regulator is looking to help EIF directors “raise the bar” with standards that build on a new GFIA ‘code of conduct’.
The ability to launch without any regulatory downtime is not a new concept – Luxembourg did it for seven years until 2012, and Caribbean jurisdictions still offer this facility.
Gibraltar funds need to register 10 days after establishment – having involved senior legal counsel, an authorised EIF director and, as appropriate, a regulated funds administrator – or if they want to register before they start conducting licensable activity, the FSC expects to turn an application around within 10 days assuming documentation and information is correct.
Mrs. Barrass told the 90+ industry professionals attending a concurrent GFIA corporate governance seminar: “We are having to do quite a lot of work to manage risks arising from [EIF] Directors not properly taking account of the inexperience in practice of investors, not fully being on top of the risks of fraud and not ensuring skill and competence more generally – particular with respect to investments in more esoteric markets and illiquid markets.”
Where those funds involve “investors who despite their ‘experienced’ status, in practice are heavily reliant on strong governance of the fund to ensure their interests are protected”, EIF directors need “to take their duties of fiduciary and due care, skill and diligence seriously”, she said given the EIF swift-to-market ability.
The FSC’s prime consideration, the regulator reminded, was consumer protection and Gibraltar’s financial services sector reputation. Mrs. Barrass noted that “unlike the larger jurisdictions, when the greater freedoms are abused and we see fraud – investors exposed to greater risk than anticipated – I think a disproportionate international spotlight is shone than when the same things happen in the larger jurisdictions”.
All concerned with the EIF process needed to ensure the regime was being used for its original intent and boards of directors and senior managers, either in the fund or service providers (such as administrators or investment managers), were “particularly important to the delivery of a sound risk culture, she emphasized. “It is critical that they are able to demonstrate adherence to sound risk management and integrity and competence in risk governance”.
Lasry believes: “The great majority of firms and individual involved with the funds sector are GFIA members, but worryingly of the 90 EIF licensed directors only 21 are members, which is of concern.”