The Guernsey Financial Services Commission (GFSC) as a result of discussions with the local fund industry, issued a consultation paper in November 2003 to address issues concerning the administration of hedge funds and funds of hedge funds.
The fund industry was seeking clear guidance as to the derogations available to sponsors wishing to set up such funds under the existing regulations in Guernsey. Peter Moffat, Director of Investment Business at the GFSC has responded by means of a paper titled Hedge Funds: Flexible Approach to Authorisation Policy, issued via a press release on 23 February this year.
There has been a requirement to appoint a Guernsey domiciled and licensed custodian for such schemes, but the GFSC will now designate a suitably qualified prime broker to be the fund’s custodian. This will increase significantly the opportunities for a wider range of sponsors to launch Guernsey funds. Also, for expert and institutional investor funds the prime brokers will not be required to have complex segregation arrangements.
The Regulator may also grant waivers for funds of hedge funds which need to use estimates of net asset values of underlying funds in order to determine the net asset value. As an administrator of such funds we are particularly pleased that the Commission appreciates the challenges faced in finalizing valuations on a timely basis, given the reliance on prices received from other administrators.
Finally, the GFSC will grant waivers of client money rules which will allow funds of hedge funds to invest subscription monies before shares have been issued to investors. We believe this will be of particular interest to fund sponsors.
In summary, this move by the Guernsey Regulator clarifies their approach to hedge funds and funds of hedge funds and will make Guernsey an even more attractive place for the launch and administration of such funds.