The Experienced Investor Fund

The Experienced Investor Fund (“EIF”) regime was first launched in Gibraltar in 2005 with the publication of the Financial Services (Experienced Investor Funds) Regulations 2005. The legislation was recently amended by the Financial Services (Experienced Investor Funds) Regulations 2012.

As its name suggests, the product is aimed at the professional investor and as such, an EIF is both highly versatile and lightly regulated. It does not require prior regulatory approval and therefore can be set up in a matter of days.

 

Promoters

There is no requirement for promoters of an EIF to be licensed as the underlying nature of the fund is that it is for the experienced investor. Due diligence and client acceptance procedures may be carried out by the fund’s administrator.

Any safeguards are provided by the requirement that an EIF must have two directors who are authorised to carry out such duties by the FSC.

The Director’s role is to ensure the proper governance of the fund.

Management

Again, due to the nature of an EIF, there is no requirement for an investment manager. However, where an investment manager or financial adviser is desired, there is no requirement for that person or body to be located in Gibraltar as long as he/it is licensed or entitled to give investment management in the jurisdiction of residence.

Depositaries

An open-ended EIF must have a depositary; in effect, a custodian who holds the investments on behalf of the investor participants.

Additionally, the fund may appoint brokers to assist with trading activity, neither or which need to be in Gibraltar.

 

Private Placement Memorandum (Prospectus)

An EIF must issue a prospectus which is consistent with recognised industry standards. The purpose of the PPM is to allow a potential investor to make an informed choice as to whether to invest and essentially sets out:

  • The operational rules of the fund.
  • The respective fees that are chargeable.
  • The objectives of the fund.
  • Any restrictions relating to asset classes.
  • Investment risk.

Authorisation & Regulatory Requirements

There is no requirement to obtain pre-approval from the FSC before an EIF is launched. This principle underlines the self-certification of experienced investors. Consequently, the ability to incorporate, appoint service providers, produce a prospectus and hold a board meeting to launch the fund ensures an expedited process.

Within 14 days of the funds launch, notification of the fund must be given to the FSC with the following supporting documentation:

  • The private placement memorandum.
  • Memorandum and articles of association.
  • A legal opinion from Gibraltar counsel confirming that the fund has been set up in accordance with EIF regulations and any other relevant legislation.
  • A form completed by the administrator.
  • The prescribed fee (currently £2,500).

Auditors

An EIF must have an annual audit of its financial statements which should be conducted in accordance with international practice. The balance sheet should include the fund’s net asset value as apportioned to each redeemable preference share.

 

Qualification to Invest

  • Individuals whose net worth (or joint net worth with spouse) exceeds €1m aside from residential property.
  • Professionals or partnerships whose normal business is investment related activity.
  • Corporate bodies or unincorporated associations which have net assets in excess of €1m.
  • A trustee where the trust assets are in excess of €1m.
  • A participant who has a current aggregate of €100,000 invested in an EIF.
  • A participant who has a current aggregate of €50,000 invested in an EIF and who has received professional advice to invest in the fund.

Typical Structures

Whilst the new regulations permit a legal entity established in an EEA state to be set up as an EIF, the most common structures used in Gibraltar are:

  • A single fund structure, or
  • An umbrella fund structure with protected cells

Single Fund Structure

Overview of a single fund structure in flowchart form

An Umbrella Fund Structure with protected cells

The use of protected cells companies allows the segregation of assets into individual ‘cells’ which are statutorily ring-fenced from each other and are therefore remote against bankruptcy or any losses sustained from other investments within the main fund.

 

  • Governed by the Protected Cell Companies Act 2001.
  • Single legal entity established (umbrella fund) with segregated cells or ‘sub-funds’ which can trade independently of each other.
  • Each cell can be used for specific investment objectives and/or strategies.
  • Specific clients can be allocated to specific cells.
  • Specific cells can be closed once the purpose of their particular creation has been achieved.
  • No restriction under Gibraltar law as to how many ‘sub-funds’ can be created.

Overview of an umbrella fund with protected cells in flowchart form

Advantages of using an Umbrella structure with protected cells

  • Streamlines separate marketing and administration costs.
  • Minimises set up and operational costs.
  • New investment strategies can be implemented easily and quickly by the Board to maximise investor opportunities when they arise.
  • Additional cells can be created with minimum formality.
  • Versatile and flexible: shares switched cells are a simple, cost effective transaction.
  • Investors have access to a balanced and flexible investment strategy through a single legal entity.