Hedge Funds: Gibraltar in the Forefront

Gibraltar's hedge funds industry is expected to benefit significantly from the EU Directive on alternative investment funds. The impact of the Directive will be "tremendously beneficial" to the Rock's financial sectors, according to fund experts.

And it will add a further string to the industry’s bow, already strengthened by the recent decision of two major British funds – between them handling investments of at least $1 billion – to relocate to the Rock.

The two funds took the decision to move independently to avoid the threat of swingeing tax hikes and tougher regulations of the industry threatened by Gordon Brown’s Labour government. Labour’s defeat at the May polls and its replacement by a Conservative-Lib.Dem coalition has reduced the intensity of the threat to UK-based funds; but while this may have been alleviated, many City operators are now concerned that new EU regulations will curtail the industry’s growth in the UK. Nevertheless, most agree that the resulting draft directive approved by the European Parliament and EU finance ministers (with a final version expected in July) is an improvement on earlier versions.

The Directive will give regulators new oversight of funds' leverage and capital ratios, but will not impose fixed limits. Private-equity funds will be subject to lighter regulation than hedge funds. And although new disclosure requirements will create a tougher environment for venture-capital-backed businesses, firms with fewer than 50 employees are exempt – an aspect which gives Gibraltar firms a sharp edge on their competitors as the staff numbers of all of the Rock’s fund managers fall below this limit.

In spite of US pressure, French and German finance ministers are thought to be unlikely to agree to any compromise on new rules which block the marketing of funds domiciled outside the EU to European investors, unless their home markets have equivalent regulatory oversight. And this further strengthens Gibraltar’s position, according to the Gibraltar Funds and Investments Association.

It is believed that four jurisdictions are likely to benefit from this - Gibraltar, Malta, Luxembourg and Ireland.  The proposed EU funds legislation will benefit Gibraltar’s industry “tremendously” as investors move to quality European jurisdictions.

There will also be considerable opportunities in Islamic finance as the jurisdiction explores the possibilities of Shariah compliant hedge funds.

The decision of two big UK players to move their operations to the Rock is also a confirmation of the praise in December last year by the influential Hedge Funds Review. “Gibraltar’s tactics have been to pursue slow, steady growth, taking time to build relationships with new partners,” it said. “The proliferation of hedge funds and the expected continued growth of this sector of financial services could help give Gibraltar a much-needed boost in its efforts to become a mainstream EU hedge fund domicile.”

The growing importance of the industry, was stressed recently Financial Services Commission CEO Marcus Killick. “Gibraltar consistently punches above its weight in the finance industry,” he said. “This is especially true in the funds industry that has shown tremendous growth over the last few years.”

Gibraltar’s fund regime, particularly the Experienced Investor Fund regime is a safe balance between regulation and operational flexibility which should be well received in the global international funds market. For further information please send us an email.

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