The Guernsey Financial Services Commission launched on Wednesday 16 November 2016 a Private Investment Fund (“PIF) regime providing fund managers with more flexibility and a greater choice of fund products.
The PIF, which was developed in response to market demand recognises that certain investment funds are characterised by a relationship between management and investors that is closer than that of a typical agent. The PIF dispenses with the formal requirement for information particulars such as a prospectus in recognition of that relationship, significantly reducing the cost and processing time of launching of a fund.
The PIF, which can be either closed or open-ended, should contain no more than 50 legal or natural persons holding an economic interest in the fund. A key strength of the product is that, where an appropriate agent is acting for a wider group of stakeholders such as a discretionary investment manager or a trustee or manager of an occupational pension scheme, that agent may be considered as one investor. While there is a limit imposed on the number of investors in the PIF, no attempt has been made to limit the number of investors to whom the PIF might be marketed – a feature not available under comparable regimes.
Key features of the proposed Private Investment Fund Regime
The Private Investment Fund is a regulated product with a focus on strong corporate governance, including managing conflicts of interest. No-one should be in any doubt that only the highest principles of corporate governance must be exercised in the use of this product.
1. Private Investment Funds may be either open-ended or closed-ended.
2. Private Investment Funds will be subject to the Private Investment Fund Rules. The Rules contain requirements for
- Managing conflicts of interest;
- Submitting annual returns notifying of any changes to the warranties made (please see 8 below);
- Submitting annual audited accounts within six months of period end;
- Mandatory characteristics of a private investment fund (please see 3, 4 and 5 below)
but do not contain any requirements for an information particulars to be prepared.
3. The Private Investment Fund should contain no more than 50 legal or natural persons holding an ultimate economic interest in the private investment fund, save in the instance where the investment is made by an investment manager acting as agent for a wider group of stakeholders. This may be, for example (but not exhaustively): an investment manager acting as agent for investors in a collective investment scheme or equivalent, pension holders in an occupational pension scheme, or government funds – whether local or sovereign.
4. Excepting a period of one year commencing from the date of first subscription, there is a “rolling test” applied on a continuous basis. In the previous twelve months, the Private Investment Fund can add no more than 30 new ultimate investors. This test must be applied and evidenced by the licensed manager of the Private investment fund. The manager shall keep a record of such tests.
5. No attempt has been made to limit the number of investors to whom the private investment fund may be marketed.
6. The Private Investment Fund requires a licensed manager in the structure. No rules would be applied against the licensed manager.
7. The Private Investment Fund cannot entertain a structure whereby there are separate investment advisers acting in respect of individual cells. There must be one adviser to the entire structure.
8. As part of the applications process, the proposed licensed manager provides warranties not only on the fitness and propriety of the promoter, but also on the ability of the investors to assume loss. The philosophy of a private fund is a close relationship between investors and management; therefore, this is not an unreasonable representation. The Commission will treat any failures in the process leading to the signing of such warranties extremely seriously.
The Applications Process
The duration of the applications process would be one business day. The application Form PIF requests both a licence, under section 4 of the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended (“the Law”) and for fund registration under section 8 of the Law. Strong corporate governance is ensured through the requirement for a manager licensed under the Law. Thus the licence and fund application is made in tandem and is turned around in one business day by the Commission.
An application should be accompanied by the relevant licensing and registration fees.
Guernsey Funds Update
The development of the PIF follows closely on the heels of the introduction of Guernsey’s Manager Led Product (MLP), a regime designed in light of the Alternative Investment Fund Managers Directive (AIFMD), which places the regulatory burden on the manager and not the fund.
Commenting on this new fund regime JTC Guernsey’s Managing Director Adam Moorshead said “The addition of the Private Investment Fund strengthens Guernsey’s position as a leading jurisdiction for the establishment of Investment Funds. As one of the leading Fund Administrators on the Island, the team at JTC are well placed to assist you with all of your service requirements and we would be delighted to explain the new regime to you.”
Source: Guernsey Financial Services Commission