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Offshore Services - Isle of Man

Introduction

 

In March 2007 the Funds Review Group, a body appointed by the Isle of Man government, recommended that two new Isle of Man investment funds be created: (i) a specialist fund, targeting the institutional alternative market and with a minimum investment of $100,000; and (ii) a qualifying fund, targeting non-retail investors.

Detailed proposals and draft regulations have now been published by the Financial Supervision Commission and consultation with the funds industry is underway. The proposed regulations are (i) the Financial Supervision (Specialist Fund) (Exemption) Order 2007, and (ii) the Financial Supervision (Qualifying Fund) (Exemption) Order 2007.

It is expected that the new funds will be launched shortly.

 

Specialist Funds

 

The Specialist Fund is targeted at the institutional alternative market, has a minimum subscription of $100,000 and has the following characteristics:

  • Investors must be 'specialist investors', meaning (i) institutions and professional investors, or (ii) corporations or individuals with a self-certified net worth (excluding principal residence) of not less than $1 million which make an initial subscription of not less than $100,000 for each investor. Functionaries and employees, officers or members of functionaries may also invest no less than $100,000.
  • A person investing as agent will be required to certify that the person on whose behalf the investment is made is a specialist investor, and life assurance companies will be required to certify that the underlying policyholder is a specialist investor.
  • No custodian is required.
  • The fund's governing body is responsible for ensuring that a suitable asset manager or investment adviser is appointed.
  • The offering document must contain all material information, prescribed information and risk warnings.
  • An administrator regulated in the Isle of Man or a jurisdiction acceptable to the Financial Supervision
  • Commission must be appointed.
  • One non-executive director who is independent of the promoter must be appointed.
  • The board of directors will be responsible for ensuring that the fund is managed in accordance with its constitutional documents.
  • Where an administrator outside the Isle of Man is appointed, an Isle of Man resident director who is a licensed fiduciary in the Isle of Man or is provided by a licensed fiduciary must be appointed to the board. This director can be the same individual as the non-executive director referred to above.

 

Qualifying Funds

 

The Qualifying Fund is targeted at non-retail investors, has a minimum investment as agreed between its manager and governing body, and has the following characteristics:

  • A Qualifying Fund must have a promoter licensed in the Isle of Man or in an acceptable jurisdiction.
  • Investors must be qualifying investors, meaning (i) institutions and professional investors or (ii) persons who certify themselves as being sufficiently experienced to understand the features and risks of investing in an unauthorized and unapproved fund such as the fund and who have been advised as to the suitability of the investment for them by a financial adviser who has been assessed as being acceptable by the fund's promoter.
  • A person investing as agent will be required to certify that the persons on whose behalf the investment is made are such investors; and life assurance companies will be required to certify that the underlying policyholder is such an investor.
  • The offering document must contain all material information and contain prescribed information and risk warnings.
  • A Qualifying Fund must have a manager licensed in the Isle of Man. The manager is responsible for the administration of the fund and for determining whether the fund is and continues to be operated in accordance with its constitutional documents. The manager also has certain Financial Supervision Commission reporting requirements.
  • The fund must appoint a suitable asset manager or investment adviser, who must be approved by the manager. In assessing whether an asset manager or investment adviser is suitable, the fund's governing body is required to take into account its regulated status and the regulated status of any person providing investment services to it.
  • One non-executive director who is independent of the promoter must be appointed, and an Isle of Man resident director is required (these can be the same individual).
  • A custodian which is authorized either in the Isle of Man or in an acceptable jurisdiction is required.

 

Experienced Investor Funds

 

The proposals in the draft Financial Supervision (Experienced Investor Fund) (Exemption) (Amendment) Order 2007 will affect the continued operation of experienced investor funds (EIFs) in the Isle of Man.

 

No new EIFs may be established after November 1 2007 and it is proposed that existing EIFs will have a period to decide whether to continue as an EIF having the characteristics of a Specialist Fund or an EIF having the characteristics of a Qualifying Fund.

 

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