Setting up a non-retail pooled fund (hereinafter referred to as a NRPF) in the UK is not such an easy task. NRPFs are ordinarily established abroad, i.e. in a country or region having its own jurisdiction and governing bodies (also known as an offshore jurisdiction). That is primarily due to the non-availability of non-taxable pooled investment vehicles in Great Britain. The only exception is UUTs which are unauthorized by the FSMA and can only be accessed by UK nationals having more than 1 share.
Establishing non-retail CEFs, usually means registering a UK-based partnership with limited liability.
To launch a hedge fund in Great Britain, one is to license a company registered in an offshore jurisdiction or a trust.
Governing NRFs in UK
Management NRFs in Great Britain is done according to UK legislative framework, and more precisely, the AIFMD implementation in the UK. Some NRFs are qualified as EU VCFs or EU funds of social entrepreneurship as per EU legislative framework that applies to AIFMs.
An AUT, QEIC or approved contractor scheme in Great Britain are established pursuant to the FCA-authorized QIS. Since QIS cannot be considered part of the USITSD, it can be thought of as an AIF as per the AIFD.
A UK-registered AIF designated as MMF is to abide by the special provisions of the MMFR with respect to liquidity and spread.
Licensing of NRFs in the UK
AIF managers are required to apply for a respective license as per the regulations of the FSMA. No licensing is needed for an AIF; the only exception are cases pertaining to the licensing of ELTIFs which are required to abide by regulations pertaining to long-term investing in the EU. Investors investing in NRFs are legally bound to apply for a European Union ‘passport’ to be eligible for selling their ELTIFs in the EU.
Only AIF managers are entitled to selling NRFs in the UK. Pursuant to the FSMA, it is permissible to sell of British NRFs to individual and institutional investors, including certified ones.
Brexit and its Financial Repercussions
Following Brexit, British managers funds of funds will no longer be able to hold passports. In particular, they will be prohibited from:
- engaging in entrepreneurial activities throughout the EU
- set up subsidiaries in EU countries
- sell AIFs in the EU
- have access to all EU-controlled markets
Great Britain has no rules or regulations prohibiting different kinds of investors from owning British NRFs. However, it does prohibit selling of NRFs to particular kinds of investors.
British laws also apply to companies involved in the selling of ‘advanced’ financial assets. Under them, assets bought by investors are guaranteed to be suitable to their needs.
How NRFs Get Managed and Regulated
Those involved in the management of NRFs are required to abide by respective legislation in in a specific jurisdiction. For instance, establishing an NRF in Ireland will require abiding by legislative framework governing establishment of funds in Ireland.
Taxation of NRFs
Normally, British funds that are structured like partnerships are not liable to taxation. Those of them that are structured like offshore entities aren’t liable to taxation either, on condition that those managing them fit the exemption criteria.
UK nationals involved in investment activities are legally bound to pay income tax on proceeds derived from selling their assets through offshore companies.
How NRFs Get Protected in the UK
As per the AIFMD, individuals involved in the management of AIFs in the EU countries are legally bound to appoint a holder of their assets who will also monitor and evaluate their cash deposits.
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How NRFs Get Managed in the UK
Those involved in the management of NRFs are to obtain an AIFM license in the UK with the FCA. British AIFMs are legally bound to hold a license authorizing selling of AIFs in Great Britain, as well as provide detailed information on their AIFs. Once that criteria has been complied with, the FCA has twenty business days to issue or deny the license.