Class Q Funds

Class Q Schemes

The Collective Investment Schemes (Qualifying Professional Investor Funds) (Class Q) Rules 1998 (the “Class Q Rules”) seek to provide a clear and concise set of requirements for the operation of professional investor funds and have been designed to encourage innovation. The Class Q Rules incorporate a measure of flexibility, consistent with meaningful investor protection. Accordingly, the Class Q Rules allow greater discretion in respect of investment restrictions and place more emphasis on disclosure of risks inherent in the investment vehicle.

The manager and directors must take reasonable steps to ensure that units or shares are only held by qualifying professional investors (at the time of investment) which are defined as:

A “qualified investor” is defined as a “professional investor”, an “experienced investor” and/or a “knowledgeable employee”. Definitions of the different classifications of investors are:

  1. a professional investor: includes any individual investing at least US$100,000 (or currency equivalent) (subsequent investments by that individual may be for lower amounts) or a person whose ordinary business or professional activity includes underwriting, managing or acquiring investments whether as principal or agent or the giving of advice on investments. The definition also includes financial services businesses or financial service professionals associated directly or indirectly with the operation of the QIF;
  2. an experienced investor is a person who has, in any period of 12 months (or in the course of employment by another person), so frequently entered into transactions of a particular type in connection with investment funds or general securities and derivatives of a substantial size with, or through the agency of, reputable persons who carry on investment business. The experienced investor can reasonably be expected to understand the nature of, and the risks involved in, investments of that kind. Alternatively, this requirement is satisfied if an appropriately qualified investment adviser confirms that the investor has obtained independent advice; or
  3. a knowledgeable employee is any employee, director, partner or consultant of an appropriately qualified professional investor or anyone who has fulfilled such a role within a period of three years up to the date of the application for investment in the QIF. The term employee will not cover clerical, secretarial or administrative roles. A knowledgeable employee will also include any employee, director, general partner, consultant or shareholder of an affiliate appointed by the QIF to advise, manage or administer the investment activities of the QIF and whose investment in the QIF is part of his remuneration, incentive arrangement or co-investment in the QIF.

The GFSC will expect a representation to be made by the relevant investors in the fund’s application form that the requirements described above in relation to the definition of a qualified investor have been satisfied.

The main characteristics of the Class Q Rules are as follows:

  • The fund must be incorporated or constituted under Guernsey law.
  • Only qualifying professional investors may hold units or shares.
  • No investment restrictions, valuation or dealing restrictions.
  • A designated manager (who conducts the day-to-day administration of the fund) and a designated trustee/custodian (who undertakes custodial duties and conducts oversight on the manager). Both these designated persons must be resident in Guernsey and are subject to the Commission’s regulation.
  • Annual reports are required.
  • Information particulars must be revised to include any significant change.
  • Derogations from the requirements of the Class Q Rules are permitted.

Application Process

Unless they can be classed as Qualifying Investor or Registered Funds, which are both subject to a turnaround time of 3 working days, there is a three-stage process which applies to Class A funds.

  • Stage One: Outline Authorisation, following a review of Form GF
  • Stage Two: Interim Authorisation, following a review of Form  AP
  • 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.

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 and the proposed trustee/custodian. 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 scheme. 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 scheme 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 scheme, 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 offer document) at this stage as it will not be reviewed by the Commission.

If all parties meet the policy of selectivity and the detailed proposals otherwise appear acceptable to the Commission, 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.

Stage Two – Interim Authorisation

The applicant should submit a near-final draft of the prospectus for the scheme (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 Application Form APQ with the prospectus.

The application forms include disclosure checklists which adhere to the requirements of the Class Q Rules. Any matter specified by the schedules to be included in the 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 Application form requires a signature by each of the proposed designated persons which will 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 scheme particulars?

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. The Class A Rules may not be modified and no derogations will be granted.

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 scheme (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.
  • The GFSC has received a certificate from an approved law firm confirming that the principal documents and scheme particulars comply with such rules as relate to their contents or giving such confirmation subject to such exceptions as are detailed in the certificate.

Any formal conditions to be imposed upon the authorisation of a Class A fund or any derogations from or modifications of the Rules will be incorporated into this certificate. Applicants should note that the Class A Rules may not be modified and no derogations will be granted. 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 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 scheme has reached “outline” stage and requires a specific request from the applicant.