Sovereign wealth funds and large pension funds have
traditionally been important investors in PE funds, relying on the
expertise of the PE house to select and manage investments.
However, as their confidence and experience as sophisticated
investors has grown, those institutions have begun making direct PE
and other investments through their own vehicles. This
development was discussed in the Economist, 1 November 2014,
Those institutions may invest alone or with others and the
target investment may be a single venture or an entire portfolio
(perhaps discarded by a bank focussing on core business). The
acquisition wilPRl usually be made through a vehicle established
for that purpose ("SPV"), often a
limited partnership. An investment manager may be appointed
to the SPV to conduct initial due diligence on the assets and to
manage them following the acquisition.
The assets are often sold through an auction process and the
ability to establish the SPV quickly is important if the investor
is to secure the bid. In sophisticated finance centres such
as London and Guernsey, forming vehicles quickly is not an issue
– for example, Guernsey companies and limited partnerships
can be formed in a day or less. However for UK alternative
investment fund managers ("AIFM")
appointed to an SPV, their ability to move quickly can be hampered
by FCA regulation.
An SPV used to acquire a portfolio of investments is likely to
constitute an alternative investment fund
("AIF") under the EU AIFM directive.
Under SUP 15.3.27 of the FCA Handbook, a UK AIFM must give at least
one month's notice to the FCA before it can be appointed as
manager of another AIF. In a competitive tender process the one
month delay caused by this notification process can make the
difference between winning and losing the bid.
Using a Guernsey managed vehicle avoids this delay. If a
Guernsey manager or general partner is appointed to the SPV no FCA
approvals will be required and the SPV would still be able to
benefit from the expertise of the UK AIFM through an advisory
agreement. In addition, neither the general partner nor the SPV
will be regulated in Guernsey because Guernsey does not seek to
a vehicle with only a single investor - no matter how many
assets it holds;
a vehicle with only a single asset - no matter how many
investors it has;
joint ventures, where a number of sophisticated investors
jointly determine to invest in a portfolio of assets through a
common vehicle; or
the managers or general partners of those vehicles.
Guernsey is already one of the world's leading jurisdictions
for the establishment of traditional PE funds because it offers
expertise, top quality service as well as fiscal neutrality. As PE
investors become more sophisticated in their approach Guernsey
remains a beneficial jurisdiction in which to establish the more
bespoke vehicles they require. Carey Olsen advises more than
half of all Guernsey investment funds, nearly two thirds of which
are private equity funds.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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