Gibraltar’s financial services industry is shaking off the shackles of European Union regulatory changes and becoming a serious contender in the hedge fund space. The territory is making the most of the UK’s break from the bloc and re-discovering its competitive edge as a small and nimble jurisdiction, while tackling the challenges this new environment may lead to.
By Joanne Sene – Gibraltar’s financial services industry is shaking off the shackles of European Union regulatory changes and becoming a serious contender in the hedge fund space. The territory is making the most of the UK’s break from the bloc and re-discovering its competitive edge as a small and nimble jurisdiction, while tackling the challenges this new environment may lead to.
“As part of the EU, Gibraltar had to learn to live with very stringent regulation. This level of regulation was not always beneficial for the jurisdiction and was sometimes difficult for the smaller/medium sized firms typically domiciled here to absorb. With our departure from the EU, we now have the opportunity to implement a regulatory structure which is more suited to the needs of a small jurisdiction,” details Joanne Sene CEO of Velay Financial Services Ltd (VFS).
EU regulatory changes, over which Gibraltar had no control, caused the territory significant difficulties. “To a certain, they extent eroded our commercial edge as a small jurisdiction and imposed very difficult demands on our small firms,” Sene notes.
Changes Gibraltar has been implementing currently revolve around funds regulation. Although its robust regulatory structure has been modelled on EU legislation, in a post-Brexit environment, the jurisdiction has the flexibility to mold this infrastructure to better suit a jurisdiction of its size.
Sene provides additional insight: “We have started to do this by introducing legislation which removes the requirement for funds to automatically opt into the AIFMD when they reach the EUR100 million AUM threshold. In the past this was a problem for hedge funds, since even small ones reached this threshold fairly quickly due to the inclusion of leverage in the AUM calculation. This legislation has already been drafted and will be introduced imminently.”
For start-up hedge funds in particular, the vehicles available in Gibraltar are especially attractive. They are easy and quick to set up and their running costs are very competitive.
“The Experienced Investor Fund or EIF, is ideal for managers who are looking for speed to market and flexibility. As the name suggests it is targeted at experienced or sophisticated investors and requires no pre-authorisation from the local regulator as long as certain conditions are met and the fund is registered with the regulator within 14 days of launch,” Sene explains, “There are no restrictions on the investments that can be made, but the EIF must appoint two directors, a fund administrator and auditor that have been approved by the regulator. EIFs can also be set up as a Protected Cell Companies (PCCs) which enable the creation of separate cells (classes) within the same structure that are legally segregated from each other and have no cross liabilities.”
She also outlines the possibility of smaller funds using the Private Fund Vehicle: “These Private Funds are unregulated and can only be offered to a maximum of 50 investors from a predefined group of people. There is no legal requirement to appoint an auditor or fund administrator, but it is recommended to appoint at least one of the two to provide some sort of independent oversight and control.”
A more accommodative environment
By and large, smaller, start-up hedge fund managers are likely to find Gibraltar a lot more accommodating than the larger or more established jurisdictions such as Luxembourg, Dublin or the Cayman Islands.
Sene details some of the salient benefits: “Due to its size, Gibraltar can adopt a much more tailor-made approach towards its clients which can be a strong advantage for smaller managers and alternative, niche funds. The industry in Gibraltar is close-knit, so it is easy to get the key providers of a fund together around a table to drum out the detail and there is also easy access to the regulator if required. Couple this with UK educated professionals, a low tax environment and an enthusiasm to attract good quality business and hedge fund managers will find a very attractive alternative to the usual go-to fund jurisdictions.”
She adds that the outlook for growth in the Gibraltar hedge fund arena is better than it has ever been: “This is mainly due to the regulatory changes we are implementing and the fact that the funds industry has now had time to mature and evolve its service offering.”
Industry players have had more than 15 years to develop their business models, understand the needs of their fund clients and contribute to the evolution of the fund structures available to them. This in turn has created a solid pool of experienced professionals and staff, most of whom are UK trained and educated.
Further, the territory’s recent focus on crypto and fintech has also encouraged technological developments across the funds sector, with more advanced platforms and tools being used to accommodate these types of funds.
“Being a small jurisdiction, Gibraltar has had a tendency to attract niche and sometimes unusual funds, so third-party providers are used to dealing with alternative investment strategies and hard to value assets and do not easily shy away from more complex funds. Our early venture into the crypto fund space is testament to this approach.
“Fund administrators in Gibraltar also tend to have good exposure working with Cayman funds, so we have learnt from their models and ensured that our service offering matches theirs and builds on it. This includes the ability to set up feeder fund structures and to structure funds as PCCs, Limited Partnerships and even trusts/foundations,” Seen outlines.
Serious contender
Although Gibraltar now faces the hurdle of having to operate outside the EU umbrella, Sene is optimistic about its prospects, having successfully navigated Brexit and the Covid pandemic: “Managers relocating to Gibraltar can rest assured that we are strongly committed to this industry and will strive to uphold the infrastructure required to continue to service funds. We have a healthy appetite to innovate where necessary and to work together to achieve our client’s objectives and maintain our competitive edge.
“Gibraltar has spent the last decade working hard to develop its funds jurisdiction and I can say with confidence that we are now ready to become a serious contender in the hedge funds space, particularly for small to medium sized start-up hedge funds.”
Joanne Sene, CEO, Velay Financial Services Limited (VFS)
Joanne Sene is the CEO of Velay Financial Services Ltd (VFS). She joined VFS in 2003 after having worked in the investment industry in London for six years, first as an Account Manager on the equities desk at Henderson Global Investors and later as a Business Analyst with Morley Fund Management. In Gibraltar, she extended her experience to the private client/funds industry, managing client accounts and supervising all operations. Joanne is director of several funds in Gibraltar and is an executive member of the Gibraltar Funds and Investment Association (GFIA).
