CHALLENGE To find the right jurisdiction to set up your mutual fund brings with it
many challenges. Set up time and costs, annual maintenance costs, growth
and investment, efficient operational flexibility, tax and regulation are all key
factors in choosing the right location.
SOLUTION Using an offshore jurisdiction such as Anguilla takes away many
of those challenges. Anguilla is politically stable, with good infrastructure,
modern and flexible legislation, a true zero tax jurisdiction, low set up and
annual maintenance costs and minimal regulation.
RESULT The Anguilla Mutual Funds Act provides for the establishment of either
a public, private or professional fund. Low set up and annual maintenance
costs, efficient operational flexibility, zero taxes and less red tape all make
Anguilla a choice offshore jurisdiction for your mutual fund.
The purpose of the Anguilla Mutual Funds Act (the “Act”) is to regulate mutual funds and managers and administrators who provide administrative support services to mutual funds. The objective is to attract mutual funds business to Anguilla by providing a reasonable regulated environment.
The Act provides for three types of funds, namely public funds, private funds and professional funds.
A public fund is defined as one making an invitation to the public, or any section thereof, to purchase shares and which is not a private or professional fund.
A private fund is defined as one with a limited number of investors and whose constituent documents specify that the invitation to purchase shares is to be made on a private basis.
A professional fund is one whose shares are available for purchase only to professional investors; defined by the Act as persons whose ordinary business involves dealing in investments.
SPECIAL PURPOSE AND CORPORATE VEHICLES FOR MUTUAL FUNDS
An Anguillian fund may be in the form of an Anguilla domestic company, an international business company, a limited liability company, a limited partnership, a partnership, a unit trust or a protected cell company/protected cell accounts (segregated portfolio company/segregated portfolio accounts). The corporate entities are extremely useful because they allow for the issuance of series or classes of shares with different rights, thus allowing for the creation of umbrella funds and master/feeder structures. The use of an Anguillian domestic company also allows for the use of companies limited by guarantee, or limited by guarantee and shares, as well as private companies whereby the articles restrict the number of shareholders to 11.
The client, a brokerage firm for example, could create a product or series of products to cater for its wide range of investors. For the small investors who do not generally invest US$100,000 in one product, a private fund would be ideal. Several private funds of 99 investors each, with a low minimum subscription, could be created in a “cookie-cutter” fashion. Thus each private fund could issue a similar prospectus, use the same functionaries with the same or similar agreements and basically negotiate on legal and other fees. The costs for establishing and operating each fund of 99 small investors would decrease dramatically, thus avoiding any adverse impact on performance or undue burdens on the fund manager.
Unlike the private fund, which has a maximum number of investors, a professional fund does not have that restriction, but instead has a minimum subscription as stated above. This is ideally suited for wealthier investor clients. In fact a firm could market a professional fund to an unlimited number of its investor clients, but, from a practical viewpoint, the use of several professional funds in a master-feeder structure would be more efficient in terms of managing and administering the structures and assets under management.
Alternatively, a firm could create a public fund or indeed several public funds for its investor clients. This, of course, would allow all clients to invest without issues of investment size or investor numbers.
The Anguilla public fund is required to submit a prospectus prior to being registered, and to present audited annual financial statements as well as a certificate of compliance from the jurisdictions where it is marketing and or operating outside of Anguilla.
REQUIREMENTS FOR RECOGNITION OR REGISTRATION
All applicants, whether a private, professional or public fund, must submit a completed application in the form set out in the Mutual Funds Regulations (the “Regs”). The procedures for securing fund approval under the Regs are quite streamlined. Barring complications, approval is obtainable within a short period of time.
For public funds, the Act provides detailed provisions on the requirements for publishing a prospectus, as well as specifying requirements for an annual audit and other manual filings with the Registrar of Mutual Funds.
Applications for private and professional funds are straightforward and considerably less onerous than for public funds. It should be possible to obtain approval for a private or professional fund within three weeks of application. The Act provides for some flexibility for private or professional funds whereby a private or professional fund is allowed to carry on business from within Anguilla for a period of 14 days without being recognized.
Administrators and Managers of funds must also apply for licenses – essentially a background check and their qualifications.
A private and professional fund which is registered or licensed under the law of a jurisdiction other than Anguilla may be recognized in Anguilla upon submission of an application providing evidence that it falls within the definition of either of those terms, is lawfully constituted under the laws of another jurisdiction and pays the requisite fee.
This is similar to the regime in, say, Singapore, which allows approved funds from other jurisdictions to be registered there by the Monetary Authority of Singapore.
REGULATORY OVERSIGHT, FLEXIBILITY AND TAX EXEMPTION
The Anguilla Financial Services Commission (“the Commission”) regulates the domiciliation of funds in Anguilla. It is an independent body free from political influence and its members are appointed by the British Governor. Under the Act, there are several provisions which allow for flexibility in the Commission exercising its functions. For example, under section 14, a private or professional fund which is maintained by a group of family trusts for the sole purpose of facilitating investment and without any solicitation being made for the sale of a right to participate in the fund, is exempted from recognition, while under section 31 the Commission may choose not to apply any provision of the Act if it would not be prejudicial to the public interest.
An Anguilla fund is exempt from all forms of taxation, including stamp duty and corporate, dividends and withholding taxation, among others. This is specifically enshrined in the Act.
Anguilla is an up and coming domicile for mutual funds because of its business friendly approach to regulation and legislation. It is well positioned to service this growing industry.