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H O N G K O N G 2 0 1 5

Gibraltar is a self-governing and self-� nanc-ing parliamentary democracy within the European Union (EU). A British overseas territory, Gibraltar’s economy is prosperous and highly-diversi� ed including � nancial services, egaming, shipping and tourism.

Given its status within the EU, Gibraltar-licensed banks, investment services � rms, Ucits, insurance companies, re-insurance companies and insurance mediation � rms bene-� t from access to the single European market and therefore a potential client base of more than 500 million people.

Gibraltar’s legal system is based on English common law. Its investment � rms are well supported by industry professionals with the ‘big four’ audit � rms, international banks, lawyers and fund administrators all having estab-lished operations on the Rock. � e Financial Services Commission (FSC) is responsible for authorising and regulating investment � rms.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE � e Alternative Investment Fund Managers Directive (AIFMD), a European Union directive, was transposed into Gibraltar law on the 22 July 2013 and imposes har-monised conditions and requirements on the structure and operation of alternative investment fund managers (AIFMs). In return, AIFMs are able to market alternative investment funds (AIFs) to professional investors across the EU. Small AIFMs (those who manage open-ended AIFs of less than €100m, or manage unleveraged closed-ended AIFs of less than €500m), are out of scope of the AIFMD. Small AIFMs can market to professional investors across the EU on a member state-by- state basis via the respective EU private placement regimes.

Hong Kong managers wishing to raise capital in the EU must seek solutions to enable them to market their funds there, and Gi-braltar can provide these solutions. Marketing, as de-

� ned in the AIFMD, means a direct or indirect o� ering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to investors domiciled or with a registered o� ce in the EU.

Marketing options available under AIFMD are:• National private placement regimes (NPPRs): � is

involves marketing in a speci� c member state via re-spective member state NPPRs and is applicable to small AIFMs and non-EU AIFMs. Mangers need to undertake careful due diligence as marketing regimes are not fully harmonised. � ese regimes, under current recommendations, will be phased out by 2018.

• Passporting: � is is the compliant, safest and most e� cient option for in scope AIFMs a� ording the ability for EU wide marketing, via passporting, to professional investors in all 28 EU member states.

Reverse solicitation is not marketing, nor should it be considered a marketing strategy, but re� ects the situa-tion whereby a professional investor in the EU may invest in AIFs on their own initiative irrespective of where the AIFM and/or the AIF is established.

� e Financial Times on 10 May this year reported that more than 550 private equity and hedge fund managers from outside the EU had registered with the UK’s Finan-cial Conduct Authority (FCA) to market their funds in

the UK in accordance with the UK’s national private placement regime. Of these, 263 were from the US and just 14 from Hong Kong and Singapore each. � is seems to imply that manag-ers throughout the world are marketing in the UK via reverse solicitation.

� e AIFMD does not set out speci� c penalties or sanctions for breach of the marketing restrictions but it is le� for individual mem-ber states to determine what punishments are appropri-ate; these could be regula-tory, civil or criminal.

HONG KONG MANAGERS WISHING TO RAISE CAPITAL IN THE EU MUST SEEK SOLUTIONS TO ENABLE THEM TO MARKET THEIR FUNDS THERE,

AND GIBRALTAR CAN PROVIDE THESE

”

Philip Canessa is a senior executive with Gibraltar Finance and focuses on the development of the funds and asset management sectors in Gibraltar. He has more than 30 years of experience in financial services and for 11 years was managing director of a specialist investment firm managing portfolios of hedge funds.

PHILIP CANESSA OF GIBRALTAR FINANCE OUTLINES WHAT THE JURISDICTION CAN OFFER ASIAN FUND MANAGERS LOOKING TO RAISE CAPITAL IN EUROPE

GIBRALTAR: DELIVERINGEU SOLUTIONS FOR HONG KONG-BASED MANAGERS

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As an example, in the UK, when an AIFM unlawfully markets an AIF such unlawful marketing qualifies as a criminal offence. Additionally there is a risk of civil actions from investors who may claim that the AIFM engaged in unlawful marketing which may result in the investor re-scinding the contract of investment in the respective fund.

THE GIBRALTAR OPTIONHong Kong-based managers need to assess the effects of AIFMD and their options for marketing to professional investors in the EU. One option available is for a Hong Kong manager to set up an investment management firm in Gibraltar which would manage a Gibraltar fund. Under the AIFMD (subject to certain conditions), the Gibral-tar AIFM could then delegate the portfolio management function to its Hong Kong-based investment management firm while retaining the risk management function (and vice versa).

A second option could be to use a Gibraltar AIFM ser-vice provider for the Gibraltar fund. The Gibraltar AIFM service provider could then delegate the portfolio man-agement function to the Hong Kong based manager. This option provides a good working solution for accessing the EU marketing passport.

GIBRALTAR’S FUNDS REGIMEGibraltar’s funds regime encompasses experienced inves-tor funds (EIFs), private funds, Ucits funds and non-Ucits retail funds. EIFs are available to ‘experienced investors’ as defined in the regulations, with the minimum invest-ment amount being €100,000 or €50,000 if the investor is professionally advised. EIFs have a number of advan-

tages including the quickest time to market in the EU, a pre-authorisation launch option, ability to opt into the AIFM regime (even if below AIFMD scope), tax neutral-ity and competitive costs. In addition, post the submission of relevant documentation to the Financial Services Com-mission along with the passporting notices, an EIF can be marketed throughout the EU via the EU marketing pass-port after 20 business days.

GIBRALTAR STOCK EXCHANGE (GSX)GSX is an EU regulated exchange licensed by Gibraltar’s Financial Services Commission. It is currently authorised to act as a technical listing exchange for open-ended funds with plans to extend its exchange services in 2015 to in-clude closed-ended funds and securitisation.

GSX can be a passive route to Europe for funds by af-fording visibility and connectivity between investors and managers. Investors can search for a fund by several specific characteristics – for example asset class, currency, geogra-phy or manager – and following registration and signing of a disclaimer, the investor can be connected with the fund’s manager for investment in the fund. Hong Kong manag-ers wishing to benefit from this visibility and connectivity can list their funds (EU and non-EU alike) through GSX’s cost-effective, six-to-eight-week listing process.

Gibraltar is well equipped to provide EU solutions for Hong Kong managers; it is well regulated, cost effective and has the quickest time to market in the EU. Gibraltar is the gateway to the EU.

For further information, email: philip.canessa@financecentre.gov.gi or visit: gibraltarfinance.gi. n

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