Gibraltar law change aimed at attracting hedge funds

Changes to the experienced investor fund rules in Gibraltar could trigger interest in the state as a location for hedge fund managers and companies, attracting redomiciles and start-up funds.

Gibraltar has made significant changes to its experienced investor funds (EIF) legislation aimed at attracting hedge fund managers as well as their management companies.

The southern European state, which is a member of the EU through its status as a British overseas territory, has plans to become one of the preferred jurisdictions for hedge funds in particular over the next few years.

A change of government in December 2011 paved the way for the necessary amendments to the EIF regime. “We want to make Gibraltar one of Europe’s premier jurisdictions for the establishment of hedge funds,” says the minister with responsibility for financial services, Gilbert Licudi.

He expects “an increase in the flow of business to Gibraltar in the area of funds and hedge funds as a result of this legislative improvement”.

Under the Financial Services (Experienced Investor Fund) Regulations 2012, various improvements to the original 2005 regulations have been made, including the opportunity for large funds to use fund administrators based outside Gibraltar as long as where they are based has oversight equivalent to that in Gibraltar. The regulations also allow funds to redomicile to Gibraltar.

The regulations enable EIFs to choose to file for registration 10 days before the scheme is established with automatic registration at the end of that period if no objection is received from the regulator. This provides greater choice, certainty and flexibility for prospective funds.

The definition of experienced investor has been expanded to include those considered to be professional investors in Gibraltar’s other investment legislation, the Financial Services (Markets in Financial Instruments) Act.

The Gibraltar funds association proposed the changes to the rules. Since the socialist labour administration (GSLP) came to office on December 8 last year, it has worked closely with the industry to finalise the rule changes.

gilbert-licudi“This has been a priority for our government, to implement measures to open up new business and expand financial services in Gibraltar,” says Licudi (pictured).

“If changes to existing legislation or new legislation can bring in new or expand the business base of Gibraltar, we are very keen to hear and explore those ideas.”

Licudi says Gibraltar has a buoyant financial services industry but wants to see more done to expand the sector. “There are clearly areas where growth could occur, such as the funds industry.”

The Gibraltar funds association has long campaigned for changes in the legislation, seeing some of the old rules as obstacles to expansion of the industry. For Licudi the current legal changes are “logical and based on sound business arguments” and should “open doors to new business that otherwise would not come to Gibraltar. We are very excited by prospect of funds being attracted to Gibraltar.”

Licudi is convinced the funds industry is an area of expansion for the tiny state. Although “we are not putting all our eggs in one basket, this is a product, an addition to what is on offer by Gibraltar’s financial services. We expect growth to occur. Those not contemplating establishment or redomiciliation can consider us. We certainly hope and expect Gibraltar to be an important player as a jurisdiction.”

The GSLP-led government is also planning other legislative changes. According to Licudi, the government is looking at the whole legal base and will “see what makes funds attracted to other places and learn from others”.

Like other EU hedge fund jurisdictions, Gibraltar is watching closely the latest developments of the alternative investment fund managers (AIFM) directive. Licudi believes Gibraltar will have no difficulty in transposing the legislation if it remains a directive. If it instead becomes a regulation, the state will instantly be compliant.

Licudi also says Gibraltar is looking at its Ucits legislation and at ways to make the jurisdiction more attractive for these fund vehicles. “Ucits is something we are looking at. We have come into government recently and have a lot on our plate, a lot of ideas. We are in discussion on how we can improve what we offer in terms of changing or looking at introducing new legislation. This is on our radar.”

Gibraltar’s proximity to the UK and London, a flight time of just under two-and-a-half hours, makes it a viable alternative for London-based managers, believes the government. While it is restricted in terms of space, Gibraltar is keen to attract what it sees as high-value-added managers, which are essentially small businesses, that would have limited space requirements.

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