Closed Ended Funds

The Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended (“the POI Law”) was amended to include closed-ended investment funds and as such closed-ended investment Funds will be declared as authorised or registered under section 8 of the POI Law.

Each Guernsey domiciled authorised fund must have a designated manager (who conducts the day-to-day administration of the fund). The designated manager shall be licensed under the POI Law and operate, and have a place of business in Guernsey.  In the case of authorised closed-ended investment funds the GFSC is willing to consider the appointment of a custodian/trustee domiciled outside of Guernsey although there is no requirement to appoint a Custodian.  In the absence of an appointed custodian, the GFSC shall be advised of the relevant provisions that will apply in respect of the Scheme Property with the application.

The Rules which apply to the operation of authorised closed-ended collective investment funds are: The Authorised Closed-Ended Investment Schemes Rules 2008 (“Closed-Ended Rules”)

Application Process

Unless the closed-ended investment Fund can be classed as a Qualifying Investor or registered Fund, both of which are subject to a turnaround time of three working days, there is a three-stage process which applies to closed-ended investment Funds.

  • Stage One: Outline Authorisation following a review of Form GFA 2012
  • Stage Two: Interim Authorisation following a review of Form APC 2008
  • Stage Three: Formal Authorisation once all issues have been resolved

Stage One – Outline Authorisation

This entails the submission of a fully completed Form GFA and such supporting documentation as required by the Form.  The Form GFA is usually submitted by the designated manager, fund manager or advocate acting for the promoter, but requires the supporting signature of the proposed designated manager. Completion of the Form requires basic details of the scheme structure and objectives, the promoters and associated parties, fees to be charged and any unusual features of the fund. All questions should be completed and the form signed and dated. If information cannot be provided at this stage (for example, if plans are provisional) this should be stated, but late changes to a fund may result in the application being delayed, or in extreme cases, refused. Where parties not known to the GFSC are to be associated with the fund, additional documentation will need to be submitted, as specified on the form. If the promoter is already known to the GFSC, or has received a positive response after submitting a New Promoters Introductory Checklist, the amount of information required by Form GFA (and the time taken for it to be processed) should be considerably reduced.

It is not necessary to submit a prospectus (scheme particulars or equivalent offering document) at this stage as it will not be reviewed by the GFSC.

If all parties meet the policy of selectivity and the detailed proposals otherwise appear acceptable to the GFSC, the scheme will receive a letter granting ‘Outline Authorisation’.  If outline authorisation is not to be granted immediately, a letter requesting further information or clarification will be sent. Wherever possible, however, outstanding issues will be addressed by telephone.

Stage Two – Interim Authorisation

The applicant should submit a near-final draft of the prospectus for the fund (or equivalent offer document), together with a copy of any application form the scheme will employ and the non-refundable application fee. Applicants are advised not to submit multiple redrafts of the prospectus as this absorbs Investment Business Division (“IBD”) staff time, requires several rounds of correspondence and will delay the application. Any additional drafts which are submitted must be black-lined with reference to the previous copy submitted to the GFSC. Revised drafts which are not black-lined will not be reviewed.

The applicant should also submit a fully completed and signed Form APC with the prospectus. The Form APC includes a disclosure checklist which adheres to the requirements of the Closed-Ended Rules. Any matter specified by the schedule to be included in the scheme particulars prospectus must be so included. The applicant is asked to indicate on the disclosure checklist how each requirement is satisfied: this is done by identifying the page number of the prospectus upon which a relevant disclosure may be found. Where the documents do not adequately satisfy a stated requirement (or IBD staff have been unable to find adequate reference) a point will be raised with the applicant.

The Form APC requires a signature by the designated manager in order to demonstrate to the GFSC that all parties are fully aware of the detail contained within the prospectus. If the proposals have changed to a material extent since the completion of Form GFA, this should be brought to the attention of IBD staff at the time the application form is submitted. Such changes may result in the application being delayed.

The general criteria the GFSC will consider when reviewing the scheme particulars are:

  • Is there is an adequate spread of risk?
  • Are there comprehensive risk warnings?
  • Is the investor profile consistent with the scheme’s objectives and minimum subscription levels?
  • Are all material facts, including fees and the names of associated parties fully disclosed in the prospectus?

The above is not exhaustive and other criteria may need consideration.

It is the GFSC’s intention to review the prospectus and disclosure checklist and issue a letter granting Interim Authorisation within ten working days of receipt. The ten-day period is indicative and, although every effort will be made to adhere to it, the GFSC cannot in any way be bound by it.

Any requests for derogations or modifications from applicable rules should be made to the GFSC at this stage. Please note the onus is on the applicant.

All points raised in the Outline or Interim letter must be resolved to the satisfaction of the GFSC before formal authorisation can be considered. Applicants should be aware that late changes to the fund (for example, the introduction of new parties) will cause proportionate delays to any final authorisation, and may in extreme cases result in authorisation being refused.

Stage Three – Formal Authorisation

Formal authorisation is granted only when all the following conditions are satisfied:

  • All outstanding points and queries have been resolved to the satisfaction of the GFSC and all requested information received.
  • The GFSC has received a certified copy of the final version of the prospectus.
  • Evidence that the scheme has been formed, e.g. a certificate of incorporation.
  • The GFSC has received signed or certified copies of all final constitutive documents. Constitutive Documents would include, for example: Trust Deed, Memorandum and Articles of Incorporation, Management Agreement, Custodian agreement, Administration Agreement, Investment Advisory/Management Agreement, Registrar’s Agreement, Sub-Custodian Agreement, Delegation agreement.

Any formal conditions to be imposed upon the authorisation of a closed-ended scheme or any derogations from or modifications of the Closed-Ended Rules will be incorporated into this letter. An annual authorisation fee is payable, but is reduced pro rata in the first year of authorisation. The amount due will be stated in the authorisation letter and will be followed by the posting of an invoice within five business days.

The designated manager is normally deemed responsible for payment of all fees. Current fee scales are set out here.

Fast Track Regime

There is also a three working days fast track approval process for authorised closed-ended funds established as “registered” or as a “QIF” in Guernsey. This fast track approval process is explained in more detail in the website.

Incorporated Cell Companies and Protected Cell Companies

For an Incorporated Cell Company (ICC) or Protected Cell Company (PCC) a separate formal consent/approval needs to be issued following outline authorisation in order that the vehicle can be registered with the Guernsey Registry. This will not normally be granted until the fund has reached “outline” stage and requires a specific request from the applicant.

Private Equity Funds

Structures for private equity funds may involve the formation of other vehicles to account for certain structuring needs of one or more groups of investors. In some cases, these entities are formed after the fund itself is established as the need for them arises. These vehicles can include parallel funds, alternative investment vehicles, feeder funds and co-investment vehicles.  These terms are summarised below; however, please note that they are not definitive.

  • Parallel Funds
    Parallel funds are investment vehicles generally formed to invest and divest in the same investments at the same time as the main fund. They are formed under substantially the same terms as the main fund, with specific differences in terms to the extent required to accommodate the requirements applicable to the investors in the parallel fund.
  • Alternative Investment Vehicles
    Alternative investment vehicles are special purpose investment vehicles formed to accommodate the structuring needs of the fund (or its investors) in connection with one or more particular investments. Unlike a parallel fund, which is designed as an umbrella entity for investors to participate as an alternative to the main fund, an alternative investment vehicle is formed so that investors who have subscribed to the main fund (or a parallel fund) can take advantage of efficient structures to hold specific assets if the fund is not the optimal investment vehicle for a particular investment.
  • Feeder Funds
    Feeder funds are special purpose vehicles formed by a fund to accommodate investment in the fund by one or more investors.
  • Co-Investment Vehicles
    Co-investment vehicles are investment entities formed by the sponsor to co-invest alongside the fund (and its parallel funds) in specific fund investments. Unlike parallel funds or alternative investment vehicles, these do not necessarily have the same investment terms or fees as the fund.

GFSC’s Approach to the Authorisation/Registration of Private Equity Funds

It is quite common for parallel funds, alternative investment vehicles, feeder funds and co-investment vehicles to be established in Guernsey and administered by the same Designated Manager as the private equity fund. Should one or more of these vehicles have the attributes of a collective investment scheme, as defined in the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (“the POI law”), and are intimately connected to the private equity fund, the GFSC will consider authorising/registering a basket of entities as one collective investment scheme.  Please note that the Commission will require a robust argument as to why a vehicle should form part of a basket of entities rather than be separately authorised/registered under the POI Law.

In the interests of clarity and transparency, the GFSC would suggest that any application for authorisation/registration of a private equity fund consisting of a basket of entities should be made in a “generic” name, relevant to all of the constituent parts, rather than in the name of one of the constituent parts. Any letter of authorisation/registration for such a “basket” fund would then be issued in the generic name, but also naming the specific entities which constitute the fund.  This would then facilitate the addition (or removal) of further entities to the fund in a meaningful manner.

It would also be expected that the offering documentation relating to such a fund should reflect the fact that each constituent entity is part of a larger fund consisting of other entities, and also that any authorisation/registration has been granted to the fund as a whole, rather than specifically to certain entities constituting such a fund.