The Specialist Fund



As a leading offshore jurisdiction, the Isle of Man offers a broad selection of alternative structures and regulatory regimes for investment funds under its primary legislation, the Collective Investment Schemes Act 2008. The fund type most commonly selected for use by institutional alternative investment fund managers is the Specialist Fund.


Choice of Legal Form

In the Isle of Man, fund structures can be created using corporate vehicles, limited partnerships or unit trusts.

Traditional corporate vehicles are established under the Companies Act 1931 (as amended) and companies with fewer administrative requirements, a more flexible capital structure and less onerous disclosure requirements are formed under the Companies Act 2006.  Both types of vehicle may be formed as protected cell companies, which are popular for multi-manager platforms and multi-class/single manager structures. 

With the benefits of tax transparency and legal and operational flexibility, limited partnerships remain an attractive alternative to the corporate structure for many managers. Formed under the Partnership Act 1909, limited partnerships permit their limited partners to undertake various prescribed "white-listed" activities, without prejudicing their limited liability status.

Manx trust law is akin to that of England and a unit trust may be used to offer a substantial level of flexibility without high levels of public disclosure.


Investors  

The Specialist Fund is aimed at institutional and High Net Worth investors. It is not suitable for retail use. Prospective investors must certify that they have sufficient experience of investing to appreciate the risks involved and must fall into one of the categories of permitted investor, such as institutional investors, affiliates of the Specialist Fund's promoters or managers or individuals with a next worth (excluding their primary residence) in excess of US$1 million.

The minimum initial investment requirement is US$100,000 and the Specialist Fund's administrator is required to ensure compliance with the minimum investment threshold.


Investment Management


Specialist Funds may be used for any type of alternative investment and do not suffer from any regulatory restrictions on strategies, leverage or asset classes. The board of directors of a Specialist Fund is responsible for ensuring that the Specialist Fund receives investment management or advisory services from an entity that is regulated in a jurisdiction that the board considers is acceptable.

Administration

A Specialist Fund must appoint a regulated administrator. The administrator may be Isle of Man based or from one of certain other jurisdictions which the Isle of Man's regulator, the Financial Supervision Commission, considers to be regulated to an appropriate standard. At present, the other acceptable jurisdictions are the UK, Jersey, Guernsey and Gibraltar, however the list is under constant review and may be added to in due course.

Custody

A Specialist Fund is able to appoint various custodians and prime brokers as it sees fit, however the arrangements for the custody of the assets of a Specialist Fund must be accurately described in the Specialist Fund's offering documents.

Governance

The board of a Specialist Fund must include at least one independent non-executive director.

The independent non-executive director need not be resident in the Isle of Man, however if an overseas administrator has been appointed, a Specialist Fund must have at least one Isle of Man resident director who either holds a fiduciary services licence him or her self or is employed by a licensed fiduciary services provider.  The Isle of Man resident director is responsible for ensuring the compliance by the overseas administrator with Manx regulatory requirements.

In addition, the whole board of a Specialist Fund is responsible for ensuring that the Specialist Fund meets its Manx regulatory obligations, including ensuring that the Specialist Fund's offering documents contain all material information, are compliant with Manx regulatory requirements and that the Specialist Fund operates in accordance with its constitutional and offering documents.   

Pre-launch Requirements

No Manx regulatory pre-launch approval is required of the offering documents of a Specialist Fund. Accordingly a Specialist Fund can be launched quickly and without the risk of an unforeseen regulatory delay.

The board of a Specialist Fund is responsible for the accuracy of all offering documents and all directors must sign a statement acknowledging their responsibility.

Manx regulatory requirements ensure the inclusion of certain prescribed statements in both the offering documents of a Specialist Fund and in its subscription documents.

Accounting

A Specialist Fund must prepare annual financial statements in accordance with international financial reporting standards or UK GAAP. The annual financial statements must be audited by a qualifying auditor, being one who is a member of a relevant professional body of accountants, who has a permanent place of business in the Isle of Man and who maintains appropriate professional indemnity insurance cover.

The audited financial statements of a Specialist Fund must be provided to investors within not more than 6 months of the Specialist Fund's financial year end.

Taxation

The Isle of Man offers tax neutrality to international fund operations. The Isle of Man has no Capital Gains Tax and the corporate tax rate is fixed at zero per cent for most tax payers. Accordingly, a corporate Specialist Fund will benefit from a zero rate of corporation tax, as will any corporate fund management or fund administration business based on the Isle of Man.

Administration and management fees levied by administrators and fund managers based in the Isle of Man in respect to services to Specialist Funds are exempt from Value Added Tax in the Isle of Man.

Fees

There is no application fee payable upon the establishment of a Specialist Fund, but a modest annual fee is payable to the Financial Supervision Commission, as is a small charge for the use of an Isle of Man incorporated vehicle.




Should you require further information about the Specialist Fund or any of the other fund products available in the Isle of Man, please contact:


Mark Holligon

Tel: +44 (0) 1624 623 919
Email: mark.holligon@goughco.com

Article posted: 17/12/2009