Fund Types & Structures

Regulation

If a vehicle established in Guernsey satisfies the criteria for a “collective investment scheme” (see below) or “fund”, it must either be registered or authorised by the Guernsey Financial Services Commission (“GFSC”) and no Guernsey-licensed entity can provide services to such a vehicle without it being so registered or authorised.

Generally, all Guernsey-domiciled funds must be administered by a locally licensed administrator and open-ended funds must also have a locally-licensed custodian.

Fund promoters new to Guernsey will have to demonstrate a proven track record.

What is a collective investment scheme or fund?

The GFSC applies the following criteria in determining whether or not an entity is a collective investment scheme or fund:

  • pooling of contributions of investors;
  • third party management of the portfolio assets; and
  • spread of risk.

If any of these features is lacking, the structure will not be regarded as a fund. For example, the GFSC is usually prepared to regard a structure as not requiring to be regulated as a fund where there is a limited number of investors, particularly where they are related parties, or where there is only one investment asset.

Difference between open- and closed- ended funds

Guernsey makes a fundamental distinction between open-ended funds and closed-ended funds.

An open-ended fund is one in which the investors are entitled under the terms of the scheme to have their units redeemed or repurchased by the fund or to sell their units on an investment exchange at a price related to the value of the property to which they relate. In a closed-ended structure, there is no right to have one’s shares redeemed although, usually, the fund will have a predetermined life.

A Guernsey closed-ended fund is not required to appoint a local custodian or a local manager or adviser. Unlike a closed-ended fund, every open-ended fund generally must appoint a Guernsey licensed custodian to hold its assets on trust. Both open-ended and closed-ended funds are required to appoint a locally licensed administrator (referred to as a “designated manager” both in the relevant legislation and in this briefing). Previously, every open-ended fund also had to appoint a Guernsey licensed principal manager. This requirement was removed at the beginning of 2007 but, nonetheless, some promoters are continuing to use principal managers within their structures.

Distinction between authorised and registered funds

The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the “POI Law”) creates two categories of Guernsey fund:

  • authorised collective investment schemes; and
  • registered collective investment schemes.

Both open-ended and closed-ended funds may be either authorised or registered schemes under the POI Law and funds may take the form of companies, limited partnerships, unit trusts or other entities.

Categories of open-ended fund

Open-ended funds may be:

  • Authorised
    • Class B: the most popular open-ended structure typically established for marketing to institutions and high net worth/sophisticated investors. The rules applying to Class B scheme documents and administration are less comprehensive than those applying to Class A schemes; or
    • Class A: eligible for marketing to the general public in the UK and certain other jurisdictions. There are comprehensive rules which regulate the documents by which a Class A scheme is established, the content of the relevant scheme particulars, the general administration of the scheme and the investment parameters; or
    • Class Q: restricted to qualifying professional investors. The rules governing such schemes are less prescriptive than those for Class A and Class B schemes and a fast track approval process should be available; or
  • Registered.

Categories of closed-ended fund

Closed-ended funds may be:

  • Authorised; or
  • Registered.

 Schematic of Guernsey Funds

 

Regulatory process

Regulatory process for authorised funds

For authorised funds (save in relation to qualifying investor funds (“QIFs”) (see below)), a traditional three stage approval process must be followed:

  • Outline consent: this involves providing detailed information in connection with the promoter and some general information in relation to the proposed fund; followed by
  • Interim consent: once the promoter has obtained outline consent, draft documentation relating to the fund structure itself is submitted to the GFSC for review. If successful, this application will result in notification that the GFSC will be minded to grant final approval upon receipt of final certified documentation; and
  • Final consent: final signed/certified documentation is lodged and the GFSC’s consent is issued within forty-eight hours.

The overall timing for this process is usually in the region of six weeks.

Regulatory process for registered funds

Under the registered fund regime, responsibility for ensuring that the promoter of the fund is fit and proper and that the fund documentation complies with the relevant regulatory requirements lies with the designated manager of the fund. The designated manager must provide warranties to the GFSC verifying those matters and in reliance upon those warranties, the GFSC will issue the necessary registration within three working days. This process has moved responsibility for compliance on to the designated managers and leaves the GFSC free to inspect, investigate and audit those designated managers to ensure that the warranties being provided to it and upon which it will rely in granting registration are accurate and backed up by the necessary documentation.

The most significant advantage that registered schemes have over authorised schemes is the fast-track three day approval process for the fund.