Knowledge

Consultants, Corvus Group, have published a report highlighting the additional costs of compliance with the Alternative Investment Fund Managers Directive ("AIFMD") – up to €3,000,000 over the life of a fund - and questioning whether those costs are worthwhile for many funds, particularly bearing in mind only very few are marketed in more than a very few Member States. They consider how non-EU funds, including Guernsey funds, can be effectively distributed in Europe under Article 42 of AIFMD.

Key takeaways

1. An EU structure may only really be needed where significant southern European distribution is anticipated or where (cornerstone) investors absolutely require it. While some investors may have a stated preference for a passported EU product, we have seen in practice that less than 10% of investors elected to subscribe to the Luxembourg sleeve of a closed ended fund, where the additional costs entailed were borne entirely by that sleeve.
2. Establishing a passport structure, e.g. in Luxembourg, could easily add an additional €3,000,000 of administrative costs (including AIFM, depositary, AIFMD compliance and administration fees) over the lifetime of a fund, impacting fund and carried interest returns.
3. Only a small number of funds (reportedly less than 3%) are registered for distribution in more than a handful of Member States and the total equivalent cost of registering a non-EU fund in those Member States is likely to be €50,000 or less.
4. Distribution pathways for non-EU funds via Article 42 notifications/registrations are tried and tested and work well. Institutional investors based in jurisdictions in which non-EU distribution is challenging are sophisticated and apply a practical approach to reverse solicitation where this is necessary.
5. Sponsors should not be put off from notifying/registering under Article 42 by the low level AIFMD reporting obligations or the more stringent Sustainable Finance Disclosure Regulation ("SFDR") requirements that become applicable as a result of this. All of this reporting can be handled by a competent service provider. For example, Corvus Group’s suite of services includes ESG data collection and reporting.

The full article is available here.

Guernsey is highly regarded for the quality of its regulatory regime and the competence and flexibility of its service providers. Investment funds activity forms a significant part of Guernsey's finance industry and many innovative products and structures are available to suit different types of investor and promoter. At the end of the first quarter of 2024, the total net asset value of Guernsey funds was £292.5 billion.

As a third country for EU law purposes, funds and managers established in Guernsey sit outside the full scope of requirement under the Alternative Investment Fund Managers regime, while at the same time benefitting from the national private placement regime in many EU member states.

Guernsey’s tax-neutral status is attractive for investment funds. There are no capital gains, inheritance, or value-added taxes imposed on funds, making it a tax-efficient jurisdiction. Guernsey funds can either be open or closed ended, and either authorised or registered.

At Bedell Cristin, our specialist investment funds teams have experience of all offshore fund types and structures. Working with the leading onshore counsel and some of the biggest names in asset management, we advise on the full life-cycle, from structuring and launch (including listings), to deployment and realisation of capital, to secondary transfers of fund interests, restructuring, wind down and termination.