Gibraltar is mythologically known as one of the Pillars of Hercules and has long been regarded as an important military bastion, due to its strategic location at the entrance to the Mediterranean.
Unlocking the Benefits of Gibraltar's Fund Structures
Gibraltar has a vibrant financial services industry, which benefits from the advantages of operating in a small jurisdiction with strong international links. Most professionals in Gibraltar are UK trained and our legal system is based on UK common law. Post Brexit, the UK and Gibraltar governments have agreed reciprocal market access for UK and Gibraltar financial services firms under the ‘Gibraltar Authorisation Regime’. Under these unique arrangements, Gibraltar firms are able to passport and market into the UK.
Gibraltar has a number of very attractive and competitive fund products, which offer great flexibility and speed to market.
The Private Fund vehicle is very useful for small fund start-ups, especially those that are cost sensitive, since there are few requirements. It is an unregulated vehicle and is not subject to any licensing requirements. Nevertheless, a private fund still needs to be registered with the Gibraltar regulator, the GFSC.
There are no restrictions on the type of investors, but the vehicle can only be marketed to a pre-defined network of investors, whose number is fewer than fifty. Despite the lack of requirements, it is recommended that Private Funds produce a Prospectus and appoint either a fund administrator, or an auditor, to establish an element of third-party oversight.
EIFs, as the name suggests, are exclusively targeted at experienced and high net-worth investors. These funds are authorised by the GFSC, but can be approved by them up to ten business days after launch, thus greatly reducing their speed to market. EIFs are subject to 'light-touch' regulation and the onus for compliance and governance is placed on the board of directors, two of whom have to be pre-approved by the regulator as ‘EIF Directors’. There are no restrictions on the eligible asset classes for an EIF, or diversification requirements and they are tax neutral. There are also no borrowing restrictions and no limits on the number of investors. EIFs are therefore ideal for managers looking for a flexible and efficient fund vehicle that can be set up quickly, but still affords investors appropriate regulatory protection.
Due to their flexibility, these funds are ideal for alternative strategies, as well as for the more traditional assets. VFS has set-up many different types of EIFs in the past, from traditional vanilla funds, to hedge funds, crypto, private equity, real estate and art funds.
There are a number of legal structures that can be used to set-up Private Funds and EIFs. Apart from the more common Private Limited Company structure, they can also be set-up as Unit Trusts and Limited Partnerships (LPs). LPs are particularly useful for private equity and close-ended funds, since they are commercially flexible and tax transparent. Like corporate bodies, LPs in Gibraltar have a separate legal personality and perpetual succession and they can have an unlimited number of partners.
EIFs can also be set-up as a Protected Cell Company, or PCC, Private Funds cannot. A PCC is a limited liability company established with different cells whose assets and liabilities are legally separate from one another. This means that the assets of each cell are ‘ring fenced’ against any liabilities arising from another cell in the PCC. This is particularly useful for managers wishing to employ different investment strategies, or target different investors. They can segregate investors into different cells according to their risk/return appetite without any risk of contagion between cells. It is also possible to have a PCC with cells that are managed by different managers.
Gibraltar funds wishing to market to the UK, must appoint an Alternative Investment Fund Manager (AIFM) and opt into the AIFM directive, as per UK law. The AIFM directive as it stands in the EU and UK, also requires any fund with exposure over EUR 100million to opt into the AIFM Directive. Since it is no longer part of the EU, Gibraltar has been able to create an exemption from this requirement. EIFs with exposures above EUR 100 million, who do not need to market into the UK, can request to be exempted from the AIFM directive and only need to register with the regulator as a ‘Small AIFM’. This is particularly attractive for hedge funds, which reach the EUR 100 million threshold quite easily due to the large exposures that they generate through their leverage strategies. If they set up as an EIF in Gibraltar, they have the option to exempt themselves from the AIFM directive, which can be very onerous and costly for smaller hedge funds with large exposures.
For more information on Gibraltar funds please go to the Gibraltar Funds and Investment Association (GFIA) website; https://www.gfia.gi/why-gibraltar/fundsetupguide
