Gibraltar has taken a clever approach to ensuring that the Alternative Investment Managers Directive (AIFMD) is as appealing as possible to managers looking to launch AIFMD-compliant funds across Europe. It is, in short, the most cost-efficient jurisdiction, whilst its Experienced Investor Fund (EIF) offers managers one of the fastest routes to market.
Following a period of close collaboration between the Government of Gibraltar, the Financial Services Commission (FSC) and the Gibraltar Funds & Investments Association (GFIA), the directive was transposed into local law a full two weeks ahead of last June’s deadline. This in itself shows just how important the jurisdiction viewed the AIFMD
At the heart of Gibraltar’s implementation of AIFMD is flexibility.
According to Aaron Payas (pictured), associate at Hassans, Gibraltar’s largest international law firm, who was seconded to the FSC to assist in the implementation of AIFMD in Gibraltar, there are two areas of flexibility which have been important to its clients.
“First, in respect to delegation we have taken a similar approach to the Central Bank of Ireland. The AIFM will need to issue, and submit to the FSC, a “programme of activity” that identifies which individual within the AIFM will, on a day-to-day basis, monitor and control each of the managerial functions of the AIFM.
“Provided the manager has this programme of activity and assigned an individual (or individuals) with the responsibility of the day-to-day oversight of the AIFM’s different managerial functions, then they can delegate out most of the functions of the AIFM. That is a useful flexibility that Gibraltar is allowing under AIFMD,” explains Payas.
The inference here is that the more functions that are delegated out the more stringent the programme of activity will need to be to obtain approval from the FSC.
“Second, we have followed the UK’s approach to remuneration in that they have implemented a proportionality principal,” says Payas. The idea is to level the playing field and not place onerous payment deferral demands on smaller managers. For leveraged funds, the AuM threshold is less than GBP1bn. Generally speaking, although other factors will need to be taken into account, crossing this threshold means the AIFM will fall under these remuneration rules. Those below the threshold will be able to disapply the payout process rules.
“Here in Gibraltar the Government, the FSC and GFIA consulted with each other resulting in the adoption of the proportionality principal and that has proved to be very important. Remuneration is one of the main concerns for fund managers under AIFMD,” comments Payas.
This level of flexibility and willingness to be adaptable in order to incorporate in an appealing fashion what may otherwise be regarded as problematic aspects of AIFMD has put Gibraltar in a favourable position. It also sends out a signal to the market that it is totally focused on the needs of fund managers in adopting the directive. This is largely what managers want to see and should bode well for Gibraltar going forward; especially when the transposition deadline arrives on 22 July 2014.
One of the most attractive features of Gibraltar is its tax regime. All funds domiciled there are tax neutral. “They are taxed only on income that is derived from Gibraltar so unless you invest within Gibraltar, which few funds do, then the funds remain tax neutral.
“The tax on a Gibraltar fund manager is 10 per cent on profits after salaries, operating expenses, etc. This is a very attractive tax rate,” states Payas.
But it’s not just the tax regime that is appealing. Gibraltar’s main fund vehicle, the EIF, is highly popular and under AIFMD it represents one of the cheapest and fastest ways for managers to market their investment strategy across Europe. There are no diversification or borrowing restrictions. The same investment strategies that are used in an offshore fund can be pursued.
“The funds will need to comply with EU anti-money laundering rules, but apart from that there’s no restriction in what the fund can invest in, how little or how much the manager wants to diversify their assets and so on,” says Payas, who adds that Gibraltar remains the only EU jurisdiction where one can launch a fund pre-authorisation.
“The manager can launch an EIF, with a legal opinion, and start marketing it as long as within 10 business days it submits all of the relevant fund documentation to the FSC. That makes it one of the most popular vehicles in Europe. Speed to market is vital for some of our clients so this is a key feature. This is one of our main selling points.”
This is certainly highly attractive, especially if the manager has interest from prospective investors and needs to get the fund to market as quickly as possible. However, the manager can only launch the EIF at the pre-authorisation stage provided they have received a legal opinion from a Gibraltar-based lawyer with at least five years’ standing stating that the Fund has been properly set up in accordance with the EIF regulations.
“Once the fund has been verified by a legal professional before launch the actual fund authorisation process with the FSC shouldn’t take any longer than 14 business days.
“For an existing AIFM that wants to set up a new fund then the best place to go is Gibraltar. As soon as the fund launches they can submit the passporting documents. Under AIFMD, the competent authority (in this case the FSC) has 20 business days to give approval to market the fund. If, after 20 days, the AIFM hasn’t heard anything it is free to passport the fund across Europe and commence marketing.”
Were an AIFM to be set up in another jurisdiction there would be a significant amount of regulatory downtime waiting for the AIF to get approved. According to Payas, this could take anywhere up to 18 weeks depending on the jurisdiction. Once approved, the AIFM would then need to wait 20 days for the fund passporting documentation to be approved.
“Our selling point is that in Gibraltar you don’t have any regulatory downtime at all. The only delay is the 20 days for passporting approval. Managers can save considerable time by setting up in Gibraltar.
“We are seeing a few AIFM applications coming in but a lot of clients are still in ‘wait and see” mode. We expect things to pick up after 22 July when the transitional period ends,” says Payas.
The registration cost for an EIF is just GBP2,500 with an ongoing annual cost of GBP840.
As well as the flexible approach Gibraltar has taken with regards to the directive, the speed to market and cost benefits of the EIF, Gibraltar has other advantages. Apart from the 300 days of sunshine each year, it has its own airport and two more (Malaga and Jerez) within a one-hour drive with direct links to London and for those that play, there are over 60 golf courses in the region.
Factor in that the Big Four accounting firms and other key services providers are within walking distance of one another, the cooperative attitude between industry and the regulator, and there are a lot of positives for Gibraltar.