Investment Funds – For Private Wealth Structuring
Following consultation with industry in 2020, the Guernsey Financial Services Commission (GFSC) has updated its Private Investment Fund Regime (PIF), to expand the available PIF options. The new rules became effective on 22 April 2021 and immediately replaced the previous Private Investment Fund Rules, 2016.
Route 3 - the Family Relationship Private Investment Funds (PIF)
This is a new route that does not require a GFSC Licensed Manager. This route enables a bespoke private wealth structure, requiring a family relationship between investors, to be created, which must fulfil the following criteria:
- All investors must either share a family relationship or be an "eligible employee" of the family in question (an eligible employee in this context must also meet the definition of qualifying private investor under Route 2 - the Qualifying Private Investor PIF);
- The PIF must not be marketed outside the family group;
- Capital raising from outside the family relationship is not allowed;
- The fund must have a designated Guernsey Administrator, licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987, appointed to it; and
- As part of the PIF application, the PIF Administrator must provide the GFSC with a declaration that effective procedures are in place to ensure that all investors fulfil the family requirement.
Who Will this Vehicle be of Particular Interest To?
No hard definition of 'family relationship' is provided, which could allow for a wide range of modern family relationships and family dynamics to be catered for.
It is anticipated that the Route 3 PIF will be of particular interest to ultra-high-net-worth families and family offices, as a flexible structure through which to manage family assets and investment projects.
A New Approach to Modern Family Wealth Management
The recognition of traditional trust and foundations structures varies across the world, depending on whether the jurisdiction recognises common law or civil law. The separation between legal and beneficial ownership of assets is often a conceptual stumbling block in their use.
- Funds are recognised globally as well regarded and well understood wealth management structures and, in an environment of increasing demand for regulation, transparency and accountability, provide a specifically registered and regulated alternative to traditional tools.
The needs of modern families and family offices are also changing and two considerations which are now particularly common are:
- The need for greater legitimate control, by the family, over decision making and assets, which can be achieved by a representative group of family members acting as the board of directors of the fund management company; and;
- The need for wider family involvement, particularly next generation, which can be outlined in a family charter attached to the fund.
What is a Family Charter?
A family charter is a useful way of defining, organising and agreeing attitudes and strategies to matters such as environmental, social and governance investing and philanthropy.
The charter may also formally outline how family members can be developed in terms of education, particularly on family financial matters, and their involvement in the management of the family wealth.
The Route 3 PIF offers bespoke and highly flexible options for dealing with different strategies of wealth distribution and management across the family.
Separate classes of fund units might be created for different family groups or family members, reflecting respective levels of involvement, differing family situations, and differing income and investment requirements. Family assets might be pooled, for example, in separate cells within a protected cell company fund structure, to allow management of different asset classes by specific family members and the segregation of different assets and investment risk across the families' wealth.
The route 3 PIF can allow a family office to build and evidence a track record in investment management.
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.