Opportunity for Gibraltar in AIFMD, says GFIA chairman James Lasry

James Lasry, partner and head of the Funds Team at Hassans International, as well as chairman of the Gibraltar Funds and Investments Association, believes the AIFMD gives the domicile an advantage.

With the passing into law of the Alternative Investment Fund Managers Directive (AIFMD) in July last year, it is widely expected that competition in the European Union funds market is set to increase as fund managers and experienced investors look for compliant jurisdictions through which to market funds to the vast EU marketplace.

The directive, which will effectively mean that all European funds will fall under either the AIFMD or UCITS IV, has polarised funds and fund management jurisdictions into ‘European’ on the one hand and ‘non-European’ on the other. Offshore jurisdictions may feel particularly vulnerable in this process. Whereas they will continue to provide a service to certain categories of investor, the on-going regulatory changes within the funds industry will only further the current general drift to more regulated onshore markets, such as those within the EU.

In this new environment, with significant opportunities up for grabs to professional, focused jurisdictions, Gibraltar has positioned itself to maximise business opportunities under the AIFMD. As an onshore jurisdiction within the EU (but not in the Eurozone), Gibraltar has become one of only a handful of jurisdictions that offer effective and efficient fund solutions to fund managers and experienced investors that want full access to the EU market. Gibraltar Experienced Investor Funds (EIFs), for example, aimed at sophisticated managers and investors, are already the most user friendly fund vehicles within the EU, with the quickest time to market.

The jurisdiction has already seen a strong increase in funds business over the past six years and the expectation is that this will continue to increase in a post-AIFMD world. The number of funds administered increased 10 fold from 2006 to the end of 2012 (from 20 in 2006 to 215 in 2012) with total assets up by more than 1500 per cent from $341m to $5.8bn.

European options

For funds that are establishing themselves now, or funds that wish to continue to market in the EU (particularly those wishing to market in Germany, France, Italy and the Netherlands, where the private placement regimes have been substantially restricted), they will have to consider a European onshore option and, depending on size, AIFM-compliant structures.

This means that they essentially have four choices: Luxembourg, Malta, Ireland and Gibraltar. Larger funds will look to absorb costs through economies of scale and appeal to investors looking for additional layers of transparency and regulatory requirements. This may see a shrinking of the market, with less choice and more costs for investors.

Smaller funds (those with less than €100m) – which either wish to opt-in to the AIFMD passport or those that expect to cross the €100m threshold in the short to mid-term – will also be able to capitalise by moving to jurisdictions such as Gibraltar that offer an EU base combined with lower costs and a quick route to market.

The Gibraltar advantage

In their implementation of the directive, EU member states were free to decide how they exercise the derogations provided for in AIFMD. They also needed to decide whether they wished to “gold plate” the directive by adding provisions to their national fund regimes that were not required by the directive.

The Gibraltar approach, following an in-depth consultation involving a collaboration of Government, the FSC, the Gibraltar Funds and Investments Association, retains as much flexibility as possible as is offered by the directive. Gibraltar has, for instance, kept its 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.

This focus on fund manager advocacy is evidenced by the fact that Gibraltar EIFs are probably the most user friendly fund vehicles within the European Union. They certainly have the quickest time to market as Gibraltar is the only jurisdiction within the EU for the pre-authorisation launch of funds. Like the wider funds market in the jurisdiction over the past six months, EIFs, aimed at sophisticated managers and investors, have also grown significantly: from 42 funds in 2006 to 164 in 2010 and 199 as at the end of 2012.

The next few years should, therefore, see a shifting of the tectonic plates. Smaller more nimble jurisdictions will continue to attract funds, while larger, more established fund centres outside of the EU will need to rethink their value proposition. Gibraltar remains uniquely placed as a European funds hub – particularly for Experienced Investor Funds looking for a dedicated, low tax base from which to market funds in the European Union.


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