Consultation Paper on Proposals for Private Investment Funds

Results updated 21 Apr 2021

Feedback Statement on the Private Investment Fund Consultation Paper

 

We asked

We asked for feedback on proposals to introduce two new additional routes for the registration of schemes under the  Private Investment Fund Rules (“the PIF Rules””) made under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 (the “PoI Law”)

 

You said

Eleven responses were received from a cross section of industry.

The responses to this consultation were supportive of the proposal to amend the PIF Rules with all respondents welcoming the introduction of alternative approaches to registration.

Below is a summary of the feedback received, which is immediately followed by the Commissions response.

Q1: Do you have any comments on the proposed Route 2 (Qualifying Private Investor) PIF? 

The majority of responses received were strongly supportive of the introduction of proposed Route 2 with no objections to the overall proposal received.

One respondent queried the proposed marketing limitation under Route 2.

Another respondent questioned aspects of the practical implementation of Route 2 particularly around the administrator’s ongoing role in limiting access to only Qualifying Private Investors.

Commission response

The Commission welcomes respondents’ support for Route 2 PIF qualification. Provisions enabling this qualification route have therefore been incorporated in the new PIF Rules.

The intention of the proposed marketing limitation is to ensure, in the absence of a licensed manager’s assurance under Route 1, that the PIF remains a private investment vehicle. The Commission has taken into account feedback received and increased the permitted number of offers from 50 to 200, thereby providing the fund with appropriate operational freedom while continuing to ensure the private nature of the fund. There remains no marketing restriction applicable under the Route 1 qualification, and applicants may continue to choose to use this route.

The Administrator will have an ongoing obligation to ensure restriction of the scheme to qualifying private investors but the Commission has not taken a prescriptive approach to the procedures required to achieve this outcome.

Q2: Do you have any comments on the proposed Route 3 (Family Relationship) PIF?

The majority of responses received were supportive of the introduction of the proposed Route 3.  

A number of respondents raised the concern that the proposed definition of “family” in the draft PIF Rules may be too narrow to capture a modern and cross-cultural view of family.

Another respondent queried whether the definition could be extended to include close associates of families.

One respondent commented that Route 3 might contribute to a degree of unnecessary complexity in Guernsey’s fund regime.

Another respondent raised the concern that family investment clubs might be required to seek registration under the PoI Law as a collective investment scheme.

Commission response

In drafting the new PIF Rules the Commission has not sought to offer a narrow view of “family”. We have amended the draft PIF Rules consulted upon removing the reference to “links either by birth or by marriage” recognising that this is not sufficiently wide to capture all family scenarios. We will not seek to define an exhaustive list of family relationships in our framework but recognise that this may include a range of relationships including links by birth, marriage, divorce, adoption, civil union, amongst others. The scope of investor eligibility has been expanded to include family employees but only where they would meet the criteria of a Qualifying Private Investor (for example this might include the executives managing a family office). Where a relationship is solely that of a close business associate the Commission is of the view that this would not constitute a family relationship. Routes 1 and 2 may, however, be an alternative application route for collective investment of such associates.

The Commission takes the view that the revised PIF Rules offer enhanced flexibility rather than complexity by offering two additional routes to registration under the well-established and understood framework of the PIF regime.

For the avoidance of doubt the revised PIF Rules do not alter or expand in any way the long-established definition of “collective investment scheme” under the PoI Law and only collective investment schemes may register under the revised PIF Rules.

Q3: What additional steps might be taken to ensure the PIF application process remains
efficient?

One respondent stated that the new proposals, creating a regime not reliant on a Guernsey licensed manager, were key to ensuring the PIF application process was efficient while others commented that the proposed alignment with QIF criteria was important. Additionally, feedback was received that the Commission’s current application process was already highly efficient.

Commission response

The Commission is encouraged by the positive feedback received.

Q4: Do you have any comments on the proposed addition to the manager declaration under Route 1?

A majority of responses were supportive of the proposed addition to the manager declaration under Route 1, requiring the manager to undertake to document its assessment of investor declarations and make evidence of this assessment available to the Commission upon request.

One respondent questioned the necessity of the proposal offering the view that this could represent “gold-plating” based on an inaccurate assumption that investors were retail in nature.

Commission response

We welcome the general support from respondents for the proposed addition to the manager declaration. The expectation that a licensee would retain evidence of its assessment of investor declarations made to it, and upon which it may then rely, appears to be in line with basic industry good practice. The manager declaration under Route 1 has been amended accordingly.

Q5: Do you have any comments on the proposed promoter due diligence guidance?

The majority of respondents were again supportive of the proposed promoter due diligence guidance.

Two of the respondents did however note concerns about applying the guidance in respect of newly formed promoters and one noted that an attractive feature of the current regime was the ability to use this for a first fund by a manager with no track record.

Commission response

The Commission welcomes the positive response to the introduction of this guidance which will be published at the same time as the introduction of the new Rules.

The Commission confirms that the PIF remains open to newly formed promoters without an investment fund track record. The Commission would highlight paragraph 4 of the guidance which states “applications on behalf of newly formed promoters and/or investment managers will be considered” and that the licensee in its performance of due diligence may consider the “experience of the controllers, directors and management of such entities taking into account their previous employment history.”

Q6: Please provide any further comments you may wish to share with respect to the
proposed revised PIF Rules and Guidance? 

One respondent noted that the draft wording for Rule 3.2 (1) placing the responsibility for the information particulars, where these are prepared, on the manager or designated administrator was inconsistent with the obligations placed on the designated administrator by other fund rules made under the PoI Law.

Commission response

The Rules have been amended to place this responsibility, where applicable, on the manager, the directors, the general partner or trustee. This amendment will not place any new obligation on current or future Route 1 PIFs.

 

We did

The Commission made the revised Private Investment Fund Rules 2021 on 20 April 2021. While maintaining the existing PIF framework, the revised Rules introduce two additional qualification routes under the PIF regime that do not require an accompanying application for the licensing of a fund manager. This change represents an enhancement to the PIF offering for professional investors and also creates a regulated family investment vehicle, which may be appropriate for family offices and other family groups.

This revision to the PIF Rules recognises the needs of the fund industry and its clients by introducing a greater degree of flexibility while continuing to ensure that appropriate levels of investor protection are observed. In making these enhancements the Commission has listened to industry and other stakeholders and acted with a view to maintaining requisite international standards and ensuring that the Bailiwick remains a good place to do business.

 

Next Steps

The revised PIF Rules will come into operation on 21 April 2021. The Commission will welcome applications made under the revised Rules from this date and supporting guidance and application forms are available on the Commission’s website.

Links:

• The Private Investment Fund Rules and Guidance, 2021
• Private Investment Fund - Guidance Note