Guernsey's funds industry will offer flexible options when the Alternative Investment Fund Managers' Directive (AIFMD) is introduced, an audience of fund specialists was told.
A panel of experts from Guernsey and London shed light on topics ranging from delegation and marketing to the remuneration rules at an event in the City of London.
Ben Morgan, a partner at offshore law firm Carey Olsen, said that Guernsey ultimately offered "optionality and flexibility".
He said: "We are still seeing a steady inflow of some types of business. For example, in the case of Cayman hedge fund structures, managers are switching management operations into Guernsey to keep their operations out of the EU for AIFMD purposes where Guernsey is able to offer an easily accessible base for the discharge of management responsibilities in a non-EU setting.
"There are still groups that haven't made any leap one way or the other which is understandable, given the uncertainties that exist. They are all working out who their Alternative Investment Fund Manager (AIFM) is and monitoring how the directive is to be implemented in various jurisdictions, which is still challenging."
His view was that it would be wrong to assume that all existing Guernsey funds will opt to be self-managed and therefore be non-EU AIFM managed. Some will want their UK operation in the EU to be the AIFM and will therefore have the option to be AIFMD authorised.
There was a continued appetite for establishing General Partner companies for LP structures in Guernsey and this was not expected to change. There was also an emerging trend to start off as a non-EU AIFM but retaining the option to switch to an EU AIFM at some point in the future.
Robin Fuller, a director of Dexion Capital (Guernsey), looking at delegation and outsourcing, reviewed the manager intentions regarding substance in the AIFM. The AIFM must not delegate to the extent that it becomes a letterbox entity and the liability of an AIFM to the investors will not be affected by the delegation of any function to a third party. Rather, delegation must be justified on objective reasoning and the delegate must have sufficient resources and experience.
"It's very long and prescriptive about what the manager must do but it doesn't say how you should do it. The board needs to demonstrate that it is in control of all the functions but that doesn't mean it has to do them all. A lot of it is subjective and qualitative and we need to exploit that in order to control costs and have a fit to existing business," said Mr Fuller.
However, the board cannot delegate responsibility for investment and risk management.
John Cotton, a director of Deloitte, said that the Financial Conduct Authority (FCA) guidance on AIFMD remuneration has now been delayed until after the 22 July AIFMD implementation date.
"You have remuneration rules which will apply from the moment firms apply for authorisation but, in the absence of further guidance, firms will have to make 'best efforts' to comply," said Mr Cotton.
He said that many of the remuneration rules will not apply to non-EU AIFMs, however if marketing in the UK, they will still need to include in their annual AIF report aggregate remuneration levels for all "identified staff" and disclose certain details of remuneration policy and practices.
Nish Dissanayake, a senior associate at Herbert Smith Freehills, tackled the topics of scope and marketing. He clarified that the directive regulates the alternative investment managers, rather than the funds but that an understanding of what constitutes an AIF is a fundamental question.
Mr Dissanayake cited the FCA's draft perimeter guidance as being very helpful in determining certain borderline cases, giving the example of certain debt issuing vehicles. He noted, however, that differences in interpretation by different regulators can lead to difficulties in certain situations.
He added that the marketing of AIFs was not about inducements, but rather the availability of shares and emphasised the importance of mapping out now which jurisdictions funds would be marketed in, so that would-be AIFMs can plan accordingly.
Conference chairman Ian Morley concluded the event by reiterating the lack of clarity around the Directive, saying: "We are not necessarily any the wiser, but we are better informed."
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