The introduction of a streamlined approval process for open- and closed-ended funds in Guernsey sends a clear message to promoters worldwide that the jurisdiction provides a highly attractive and competitive environment for hedge funds and other vehicles aimed at professional and institutional investors.
The Qualifying Investor Funds regime was unveiled by the Guernsey Financial Services Commission on February 8, following extensive consultation with industry professionals including representatives of the Guernsey Investment Funds Association.
In fact Guernsey is already an attractive jurisdiction for both the domiciliation and servicing of funds. Last year the total assets of funds domiciled in the island rose by 35 per cent to £56.6bn, including an inflow of £4.5 billion in the last quarter, while the value of funds domiciled elsewhere but serviced in Guernsey rose 16 per cent to £17bn.
The bulk of new fund business coming to the island consists of funds of hedge funds and single-manager hedge funds, as well as private equity and property vehicles. Leading names in the alternative investment sector that have set up new funds in Guernsey recently include Thames River Capital, Dexion Capital, and FRM.
Guernsey has always been appreciated by clients worldwide for the professionalism and expertise of its fund sector and the strength of its regulatory structure. The QIF regime now ensures that it can also match any other jurisdiction worldwide for speed of approval and regulatory flexibility.
Promoters of funds aimed as professional, experienced and knowledgeable investors are now assured of approval of their fund within three working days, rather than between four and six weeks under the previous regulatory regime.
Instead of the GFSC having to satisfy itself on a case by case basis about the economic rationale of a particular fund and the appropriate disclosure of its risks, this assurance is now provided by the fund's administrator.
In addition, the administrator also certifies that the fund's promoter is fit and proper, instead of this determination being made by the Commission.
This is unlikely to impose any extra regulatory burden on administrators, since under the existing regulations they are already required to satisfy themselves that promoters are fit and proper in the due diligence process that they must conduct when taking on new business.
However, this change may lead to increased business from managers of hedge funds and funds of hedge funds that have split away from larger groups. In the past, such new promoters may have faced problems in satisfying the regulator's fit and proper requirements because of their lack of an independent track record.
The significance of this acceleration of the approval process is that in the past, promoters who had secured their investment and finalised the fund structure faced a hiatus of several weeks before receiving final approval.
Under the QIF regime, this delay will be cut to a few days, which is of great importance in a fast-moving hedge funds market. Promoters who in the past have opted to domicile funds in Caribbean jurisdictions because of their faster approval process can now find the same flexibility in a jurisdiction just an hour away from the City of London.