In September 2006 the Isle of Man Funds Review Group (the "FRG") was established and charged with the task of reviewing the Isle of Man's investment funds strategy. The FRG comprised leading members of both the public and private sector.
Since the FRG published its report in February 2007 the FRG Implementation Group, including Simon Harding, a partner in Dickinson Cruickshank's Commercial Department, has been working to progress the initiatives identified by the FRG to position the Island as a premier location for the domiciliation of specialist institutional funds in the alternative and closed ended fund sectors.
As a result, on 1st November 2007 a key new fund product was added to the Isle of Man's fund offering: the Specialist Fund.
Specialist Fund ("SF")
The SF is aimed at institutional and super-high net worth individuals and is not intended for retail investment. The SF regulations provide a clear definition of what constitutes a "specialist investor" which, broadly speaking, covers institutional investors, affiliates of the fund's promoters and managers and individuals with a net worth in excess of US$1 million.
As there are no regulatory restrictions on asset classes, trading strategies or leverage for SF's, an SF is suitable for any type of alternative investment. In addition, no regulatory pre-approvals are required from the Isle of Man Financial Supervision Commission ("FSC") which means that SF's can be launched quickly without any risk of regulatory delays. Other key features of the SF include:
- a SF must appoint a regulated fund administrator to perform its core administration requirements. The regulated fund administrator may be either an Isle of Man licensed fund administrator or a fund administrator which is appropriately licensed in a jurisdiction acceptable to the FSC;
- an independent non-executive director must be appointed to the board of the SF and, if the SF appoints an overseas administrator, an Isle of Man resident director who is licensed as a fiduciary in the Isle of Man or works for a licensed fiduciary provider must also be appointed;
- there is a minimum initial investment requirement of at least US$100,000;
- every SF must have an offering document which accurately sets out all material information to enable a prospective investor to make an informed investment decision and which contains a limited number of prescribed statements;
- whilst there are no prescriptive requirements for the appointment of a custodian, the custody arrangements must be described in the SF's offering document;
- certain functionaries of the SF are required to make periodic regulatory notifications to the FSC; and
- every SF is required to prepare annual audited financial statements which must be distributed to its investors within 6 months of the fund's financial year end.
The Isle of Man offers a tax neutral environment for fund operations. There are no capital gains taxes and the Island has a zero rate of corporate income tax for most taxpayers. This means that a corporate fund vehicle will benefit from a zero rate of income tax.
Experienced Investor Funds
The new proposals also include a transitional regime of "Qualifying Investor Funds" for former experienced investor funds that do not meet the SF requirements. All current experienced investor funds are required to opt to convert to a new fund category within 12 months and to implement such conversion within 18 months.
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.