Gibraltar’s most popular hedge fund structure, the experienced investor fund (EIF), was created under the Financial Services (Experienced Investor Funds) Regulations 2005. An experienced investor is defined as either a corporate body, unincorporated association, trust or an individual whose net worth is over Ä1 million or someone who invests more than Ä100,000 in a fund. There is no requirement for the promoters of the fund to be licensed. It is sufficient for the fund administrator to perform the normal know your client and client acceptance procedures to be able to set up a fund in Gibraltar.

Each fund must have two directors authorised by the Financial Services Commission (FSC). If the fund is a unit trust with a corporate trustee or a limited partnership with a corporate general partner, two directors or the trustee or general partner must be FSC-authorised directors.

An EIF may appoint an investment manager in Gibraltar or in any other jurisdiction. It is sufficient under Gibraltar law that the investment manager or advisor is licensed or entitled to give investment management or advice in its home jurisdiction.

An investment manager or advisor licence in Gibraltar is a full EU licence and can be passported anywhere within the EU. A Gibraltar investment manager or advisor must have a physical presence and staff in Gibraltar. An EIF that is open-ended must have a depository.

The fund can also appoint brokers to help with its trading activity. The depository and brokers do not need be in Gibraltar, although in the case of protected cell companies (PCCs) there may be some advantage to having these in Gibraltar as there is greater certainty that a court there will enforce the statutory segregation of cell assets than a non-Gibraltar court which may not be as familiar with PCC legislation.

An EIF must issue a prospectus or private placement memorandum that must state the fees that are chargeable out of the property of the fund; the investment objectives; borrowing or investment restrictions and the risks associated with such investment.

An EIF must appoint its service providers, produce its prospectus and hold a board meeting to launch as a fund. No regulatory pre-approval is necessary. Within 14 days of launch, a fund must notify the FSC and submit several documents. A licence fee of £2,500 is also due. This means there is effectively no regulatory downtime and the fund may be launched as quickly as possible. The FSC then reviews the submitted documents and may come back with questions or comments. The EIF needs to ensure it complies with EIF regulations. Breach of certain regulations requires the directors and/or administrator of the fund to notify the FSC.

The authorised directors and the administrators are expected to ensure compliance with Gibraltar legislation and corporate governance requirements. An EIF must have a fund administrator authorised and with a presence in Gibraltar.

In addition to the two Gibraltar-based EIF directors, the fund must appoint auditors that are registered in Gibraltar. There are no restrictions on borrowing or owning investments. A fund may invest in any class of investment and at any percentage.

Gibraltar funds may obtain an exemption from the commissioner of income tax on any tax on investment income. There is no capital gains tax, inheritance tax or wealth tax in Gibraltar. There is a stamp duty of £10 on the creation of share capital of a company and on any increase in share capital. There is no tax on dividends from quoted securities or on income from trading listed securities. As Gibraltar is part of the EU, the fund can benefit from the EU parent-subsidiary directive. This means payments to a Gibraltar company from subsidiaries in certain European jurisdictions (for example, Luxembourg) will not be subject to withholding tax. There is no withholding tax on payments from a Gibraltar fund to its non-Gibraltarian investors.

The valuation methods for EIFs must be disclosed in the prospectus. There are no particular rules on valuations other than their disclosure. 

It is also possible to set up a fund in Gibraltar as a PCC. PCCs can segregate their assets into cells which are statutorily protected and remote from each other in bankruptcy. This means if one cell incurs a liability, the creditors of that cell will be unable to pay their debts from assets attributable to another cell. This is particularly useful to investment managers that want to set up several funds with several strategies under one vehicle and save with economies of scale. Investors can invest in one or more cells according to their investment strategies.

Source: Hassans.