Gibraltar: the Key to Europe for US and Asian Fund Managers
By James Lasry, Vice Chairman of GFIA and President of the Gibraltar American Chamber of Commerce
The advent of the Alternative Investment Fund Managers Directive (AIFMD or the Directive) has dramatically changed the scope of services that European finance centres, such as Gibraltar can offer non EU managers (such as US, Swiss and Asian managers).
In the past non EU managers would market funds to European investors via the private placement regimes as it was almost impossible to get these funds authorised in the various European jurisdictions. The AIFMD has caused a significant tightening of many of the private placement regimes in Europe. In fact, under the Directive, they are to be phased out by 2018. Therefore, for non EU managers to market their funds in the EU, they must rely on what remains of the private placement regimes or on a concept known as ‘reverse solicitation’.
The safest way for non EU managers to market into the EU is for them to set up a European fund that can be passported into other EU jurisdictions. Depending on the strategy this will be either a Ucits fund or an AIFM fund. In either case it can be legitimately promoted to the appropriate European investors.
It stands to reason that in their search for European vehicles for their funds, non EU managers, particularly those in the US, should look to the jurisdiction which is closest legally, and in regulatory approach to what they are used to in the Cayman Islands. Gibraltar being a common law jurisdiction with the UK Privy Council as the ultimate Court of Appeal and with English as its primary language, is likely to cause less of a culture shock for US managers who have decided to use a European vehicle. Furthermore, Gibraltar is the only European jurisdiction that allows for the pre-authorisation launch of a fund, as Cayman does.
Permissible distinctions – Gibraltar’s advantage
The national private placement regimes, which under the Directive are to be phased out by 2018, have already begun to be tightened by some of the member states. In Germany, for example, a market which is not insignificant, it is nearly impossible for a non-European fund to use their private placement regime. A European fund on the other hand can use Germany’s private placement regime even if it is out of scope of the Directive simply because of the fact it is domiciled in the EU. For this and other reasons, we are seeing US managers setting up parallel or master AIFs (as opposed to feeder) in Gibraltar and other EU jurisdictions in order to assist with their European marketing efforts.
The Gibraltar approach to these issues, following an in-depth consultation involving a collaboration of government, the Financial Services Commission (FSC), and the Gibraltar Funds and Investments Association (GFIA), the representative body of Gibraltar’s funds and investment industries, retains as much flexibility as possible as is offered by the Directive. Accordingly Gibraltar has kept its Experienced Investor Funds (EIF) regime for those funds and managers that are out of scope of the Directive while allowing those that wish to, in order to avail themselves of the EU wide marketing passport, to opt in to the AIFM regime even if they are below the de minimis thresholds. Obviously those that opt in will have to abide by all the terms of the AIFM regime as if they had been in scope.
The streamlined authorisation process for EIFs should not be mistaken as light regulation. The authorisation process may be quicker due to the fact that EIFs require two directors on each board that are resident in Gibraltar and which are authorised by the FSC to act as fund directors. Furthermore, the documentation must be signed off, both by senior Gibraltar Counsel and by the fund administrator. Once the fund is authorised, the FSC has a plethora of investigatory and enforcement powers.
Gibraltar is fast developing into an international funds jurisdiction focussed both on small managers and managers which wish to market within Europe. Gibraltar held its first international funds conference in April which attracted participants from EFAMA, BaFin, AIMA, GSX, Goldman Sacs, Citibank, Society Generale Newedge, BNP Paribas, Laven Partners, Schulte Roth & Zabel, Kaye Scholer and Norton Rose. The Gibraltar Funds and Investments association under the leadership of Joey Garcia is working hard along with the Government of Gibraltar and the FSC to raise Gibraltar’s profile from being one of Europe’s best kept secrets to a jurisdiction which people recognise as a sound, safe and business friendly place from which to do business.
Ultimately, the Alternative Investment Fund Managers Directive has provided European jurisdictions and particularly Gibraltar with an opportunity to genuinely add value to non EU managers in the marketing of their funds to the EU – a market of 520 million people.