By Richard Bowry, Senior Associate at Hassans
The transitional period for the Alternative Investment Fund Managers Directive (AIFMD) expired on 22 July 2014 and accordingly the non-UCITS funds industry in Europe is now governed by AIFMD.
Gibraltar, as a member of the European Union (EU) is well placed to take advantage of the opportunities afforded by AIFMD. In particular, it will now be possible to market larger Gibraltar funds (that are in-scope of AIFMD) throughout the entire EU, on the basis of a single filing with the Financial Services Commission (FSC) in Gibraltar. It represents no less than a marketing revolution for alternative investment funds in the European market.
Naturally attention has focussed on the position of larger funds that are in-scope of AIFMD as the directive necessitates significant changes to their structure and operation. However a great number of fund managers and self-managed funds fall below the threshold levels for applicability, and so fall outside the main provisions of AIFMD altogether. A small fund manager (commonly called a “Small AIFM”) is not that small. A fund manager is a Small AIFM if it has assets under management of less than €100 million, or €500 million if the funds managed are closed ended and unleveraged.
Small AIFMs do not have the benefit of EU passporting rights, so marketing into other EU jurisdictions is subject to the private placement rules of the countries where they wish to market, no matter where the fund manager or its fund may be located. These are generally complex. For some EU jurisdictions however this is about to change. Germany, for example, has indicated that Small AIFMs located in an EU jurisdiction that allows German Small AIFMs to privately place there, will give that jurisdiction reciprocal rights to market their funds privately in Germany. This type of private placement will operate separately from the normal private placement rules applicable in Germany that are complex and restrictive.
A significant competitive advantage
In practice this puts Gibraltar at a significant competitive advantage, as few EU countries have private placement regimes sufficiently open to gain the benefit of these reciprocal rights. Gibraltar however is in the process of introducing a private placement regime which should be sufficiently open to enable Gibraltar funds to gain reciprocal marketing rights of this nature. Such access should be possible on a simplified filing basis.
Gibraltar’s new private placement regime for Small AIFMs will work by means of filings with the FSC. In essence, Small AIFMs based in an EU jurisdiction will be able to privately place in Gibraltar following such a filing accompanied by some basic information. Small AIFMs based in a non-EU jurisdiction will also need to make such a filing, but will not be able to market until receiving authorisation to do so.
It is apparent that Gibraltar is becoming increasingly attractive to foreign fund managers from all over the world looking for an EU jurisdiction to locate their funds. Its advantages are already well known. Its Experienced Investor Fund (the Gibraltar category of fund for high net worth individuals and institutional investors) is widely acknowledged internationally as the quickest to establish and launch to market within the EU (it can take as little as a couple of days), the jurisdiction is genuinely open to non-local managers and non-local administrators, its laws are based on English common law and so are familiar to international business, and the jurisdiction is effectively tax neutral.
AIFMD adds to this attraction by allowing an AIFMD in-scope fund manager to passport its services throughout the EU. As significant as this is, Small AIFMs may see even greater benefit in setting up their funds in Gibraltar, as their exclusion from the EU-wide passporting rights places greater emphasis on their private placement opportunities. Smaller funds and their managers will find they can not only establish themselves in Gibraltar economically and quickly, but should also be able to take advantage of the reciprocal private placement regime which Germany is introducing and which other EU jurisdictions may well in due course follow.
A good solution
What does this mean for European fund managers in practice. In practical terms, Gibraltar is a good solution for fund mangers large or small. Larger fund managers may take advantage of the EU-wide passporting rights now available under AIFMD. Start-up fund managers looking for an optimal location, and existing smaller fund managers which may already have established funds in differing jurisdictions and are looking for the best location for a new fund, may well find the answer in Gibraltar, where funds can be established quickly and economically and have the benefit of reciprocal private placement rights that some EU jurisdictions are introducing.