In an increasingly competitive global funds industry, managers are finding it ever more critical to address operational inefficiencies, contain costs and improve performance. Speed to market, regulatory upkeep and market access are also vital issues for management teams. These overarching themes are, in particular, felt by smaller to medium-sized funds and family offices. These groups, among others, are discovering that Gibraltar is a jurisdiction of choice in addressing the evolving challenges facing emerging funds.
By Benjy Cuby and Arman Haider – In an increasingly competitive global funds industry, managers are finding it ever more critical to address operational inefficiencies, contain costs and improve performance. Speed to market, regulatory upkeep and market access are also vital issues for management teams. These overarching themes are, in particular, felt by smaller to medium-sized funds and family offices. These groups, among others, are discovering that Gibraltar is a jurisdiction of choice in addressing the evolving challenges facing emerging funds.
Proportional yet empowering regulation
The investment funds industry is heavily impacted by regulatory busywork. Consequently, emerging funds are losing their operational forte of speed and agility. Adding in the trepidation first time managers face when it comes to address regulators’ needs, inertia often hits.
Regardless of fund size, the regulatory environment serves as a key determinant in the choice of fund domiciliation. While heavy regulation in proportion to the fund profile can be debilitating, insufficient investor protection can leave investors exposed. Gibraltar’s regulatory infrastructure, standards and oversight addresses both investors’ growing compliance demands, and managers’ need for seamless operations by drawing from an effective ‘right touch’ regulatory regime, in line with British and European standards.
Given the relatively small size of the territory, the Gibraltar regulator benefits from familiarity with the various fund entities involved and is able to undertake regular site visits of all licensed firms. Gibraltar’s funds industry and regulatory regime therefore particularly supports small to medium-sized or emerging funds. Other jurisdictions such as Ireland and Luxembourg largely have the appetite for bigger, established fund groups.
Critical speed to market
Speed to market has become crucial for locking in investor money and seizing investment opportunities. Among global fund jurisdictions, Gibraltar leads the charge on speed to market for new fund launches. The launch time for regulated Experienced Investor Funds (EIFs) can be as fast as 10 working days. This is in part due to the authorisation approach which allows the fund to launch via regulatory notification. Gibraltar’s post-launch approval means that any regulatory review of the relevant material will not delay the fund’s launch and operations. This differentiates Gibraltar, which offers managers speed which competing jurisdictions cannot match.
Gibraltar’s close-knit business community, where “everybody knows everybody” and where all firms are just around the corner, further reduces the time, risk and bureaucracy associated with the formation and operation of investment funds. This translates to an effective working relationship between the regulator, Government, service providers and investment funds. In a world increasingly enmeshed in red tape, by focusing on its financial attractiveness, Gibraltar has championed the agility emerging funds need to survive.
Market access
Brexit was a major hiccup for funds operating across Britain or raising capital from UK investors. For American market access, the Cayman Islands remain the go-to jurisdiction for fund establishment. However, when it comes to British market access, Gibraltar stands as Cayman’s counterpart by straightforwardly allowing the establishment of parallel structures to help passport funds to the UK. Bilateral arrangements ensure that this will continue being the case, regardless of Brexit.
Gibraltar’s advanced plans to introduce a dual funds regime will allow local funds to opt out of AIFMD requirements when deemed unnecessary or undesirable by the fund. This will give Gibraltar funds and managers greater operating freedom by not having to comply with unaccommodating AIFMD provisions which have proven widely unpopular and are under revision.
Niche investment areas
Managers investing in new or niche areas such as digital assets are accustomed to feeling unwelcome in various global fund jurisdictions. Service providers and regulators are often hesitant with cryptocurrency and other digital asset investments. Conversely, managers have found Gibraltar attractive for fund development in light of the jurisdiction’s forward-looking stance on emerging investment areas. Managers view Gibraltar as a progressive financial jurisdiction underlined by English speaking, professional firms, trained to UK standards, with an entrepreneurial attitude to niche investment areas such as fintech, blockchain, medical cannabis and online gaming. In general, Gibraltar regulated funds have no inherent restrictions on asset class and diversification.
In the fintech industry in particular, Gibraltar was the first jurisdiction to deploy a regulatory and licensing regime specifically for businesses providing Distributed Ledger Technology-related services. This has helped establish Gibraltar’s blockchain ecosystem, complete with banks, brokers, custodians, lawyers, auditors, administrators and professional directors who are knowledgeable in, and experienced with, digital assets. The blockchain ecosystem has also positioned Gibraltar as a leading jurisdiction globally in which to domicile cryptocurrency hedge funds.
Containing costs and enabling scale up
The time constraints routinely faced by start-up hedge funds means the administrative burden of launching parallel sub-funds can render the option unviable. Gibraltar has alleviated this pressure via the possibility of creating segregated cells with different assets, strategies and/or investors, all within one umbrella fund entity. Gibraltar’s recent introduction of protected cell limited partnerships offers a unique and flexible platform for scaling up funds, while containing costs.
Though launching sub-funds was previously possible by creating protected cell companies, this new arrangement also affords the tax transparency of a limited partnership, crucial to private equity and real estate funds. Furthermore, with Gibraltar’s limited partnership fund structure, investors can partake in advisory committees to discuss a fund’s investments without revoking their limited liability status, boosting management flexibility, an advantage to big and small funds alike.
Effective outsourcing is key
Outsourcing administration and other fund operating processes has proven to be critical, more so since the onset of COVID-19. Deloitte’s 2022 Investment Management Outlook report revealed that 95% of investment firms plan structural change across their operations, meaning more external entities involved, though it was acknowledged by an earlier PwC’s Alternative Administration Survey that almost all hedge funds already outsource fund administration services. Building an efficient and effective outsourcing framework is mission-critical for funds to financially succeed. The close relationship and familiarity between Gibraltarian financial services providers means that legal, banking, brokering, governance and administrative functions can be carried in a concerted fashion, resulting in seamless operations for Gibraltar domiciled funds.
Benjy Cuby, CEO, Finsbury Trust & Corporate Services Limited
Benjy joined Finsbury Trust in 2012 to head business development and was appointed as CEO of the group in 2020. Prior to joining, Benjy spent a decade working as an investment banker with UBS and Credit Suisse in New York, London and Tel Aviv, specializing in cross-border M&As and corporate finance mandates. Benjy received his BSc in Economics from the LSE and his MBA from Columbia. Benjy also serves on the board of the Gibraltar Funds & Investments Association (GFIA) and as Chairman of its Fund Administrators Committee.
Arman Haider, Business Development & Marketing Analyst, Finsbury Trust & Corporate Services Limited
Arman recently joined Finsbury Trust following the completion of his MPhil in Management Studies at Cambridge University. He is member of the business development and fund administration team, working under Benjamin Cuby. Arman also deals with the firm’s knowledge management and marketing initiatives.
