e-book International Funds. A Practical Guide to Their Establishment and Operation

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MiFID II came into force in January and introduces systems and controls relevant to the whole securities industry. Of particular relevance to hedge fund managers many of whom are regulated as MiFID investment forms to manage segregated accounts are rules relating to:. High frequency and algorithmic trading. The use of dealing commission to pay for broker research. Disclosure of fees and costs to clients.

A Guide for Impact Investment Fund Managers

Product governance, assessment of target market and appropriate distribution channels. Insider dealing and market abuse Hedge fund managers, like all users of the UK's markets, are subject to the UK's laws and regulations relating to insider dealing and market abuse. The two key sources of law and regulation are:. The insider dealing provisions of the Criminal Justice Act , a UK statue that imposes criminal sanctions. Transparency Hedge fund managers are subject to transparency requirements in relation to investor disclosures, trade reporting and regulatory reporting.

The requirement for investor disclosures arises under AIFM Directive, which requires certain reporting to investors both pre-investment and on an ongoing basis. MiFID II has introduced product governance and reporting requirements requiring product manufacturers and distributors to identify an appropriate target market for new financial products. These rules impose additional requirements where certain "complex" products are proposed to be distributed to retail investors. Given the technical definition of "retail" for these purposes, which encompasses high net-worth individuals and certain types of pension scheme, managers must exercise caution in determining the target market for units in a hedge fund.

The content of the KID is heavily prescribed, and the required methodologies for calculating costs and performance have been criticised within the industry. Many hedge fund managers prefer to ensure that their fund is not sold to retail investors, rather than produce a KID. Trade reporting Under the European Market Infrastructure Regulation, hedge funds must report to a registered or recognised trade repository details of any derivative contract OTC or exchange-traded they have concluded, modified or terminated.

AIFMs are also subject to additional disclosure requirements with regard to their use of securities financing transactions.

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Money laundering The principal onus of complying with anti-money laundering regulations in relation to hedge funds falls on the administrator of the fund, who is responsible for managing redemptions of and subscriptions for units in the funds. Administrators are typically located offshore in the same jurisdiction as the relevant fund and are therefore subject to regulation in that jurisdiction.

However, hedge fund managers operating in the UK are very likely to be subject to the Money Laundering Regulations in the conduct of their business. Short selling Under the Short Selling Regulation, hedge funds must report and disclose net short positions in EU shares and EU sovereign debt traded on EU trading venues above certain thresholds.

IMF Financial Operations: Overview

Who can market hedge funds? Onshore hedge funds While there is no specific restriction on who can market hedge funds in the UK, in practice, the marketing of such funds by way of business usually amounts to a regulated activity, such as "arranging deals in investments". A request for authorisation must be made at least 20 business days before the commencement of the proposed marketing, and must include the final form of the AIF's constitutional and marketing documents.

Offshore hedge funds There is no restriction on who can market hedge funds in the UK but, in practice, the marketing of such funds by way of business must be performed by persons authorised by the FCA. To whom can hedge funds be marketed? Onshore hedge funds Hedge funds are not typically established in the UK but if they were to be, the categories of persons to whom they could be marketed would depend on the regulatory categorisation of the hedge fund. A hedge fund established in the UK would most likely be either a QIS or an unregulated collective scheme.

Similar provisions apply to the marketing of unregulated collective investment schemes under the "scheme promotion restriction" section , Financial Services and Markets Act In broad terms, and subject to certain exemptions, neither should be marketed to retail investors. Offshore hedge funds Offshore funds are subject to the same rules on financial promotion as onshore funds under the national private placement rules that apply in the UK under the AIFM Directive.

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Investment restrictions. Are there any restrictions on local investors investing in a hedge fund? There are no restrictions on local investors investing in a hedge fund, provided the fund has been marketed in accordance with applicable UK regulations see Question 5. Assets portfolio. Who holds the portfolio of assets? What regulations are in place for its protection? A hedge fund's assets are generally held by its prime broker. The implementation of the AIFM Directive has introduced regulatory requirements that apply in different scenarios and the model under which the prime broker holds a hedge fund's assets will reflect the applicable regulatory requirements.

The depositary:.


Must meet certain qualifications. Is subject to detailed rules regarding its obligations. Has strict liability for loss of the AIF's assets in most cases. This lighter touch regime is generally known as "depositary-light". However, some EU jurisdictions require the appointment of a depositary for the AIFM to be able to market the AIF under their respective national private placement regimes.

No such requirement exists in relation to marketing under the UK's national private placement regime. What are the key disclosure or filing requirements if any that must be completed by the hedge fund? These include:. Pre-investment reporting to investors. This covers standard disclosures in relation to the AIF and its services providers and, more controversially, includes a requirement to disclose side-letter terms. These disclosures must be periodically updated. Periodic quarterly, half-yearly or annually, depending on the size and characteristics of the AIF reporting to the FCA on the AIF's principal exposures, risk profile and categories of assets in its portfolio.

Who finances the Fund?

What are the key requirements that apply to managers or operators of hedge funds? Onshore hedge fund managers A hedge fund manager conducting management activity in the UK regardless of where the hedge fund is located must be authorised by the FCA. See Question 3. Offshore hedge fund managers A hedge fund manager conducting management activity in the UK regardless of where the hedge fund is located must be authorised by the FCA. A hedge fund manager not conducting management activity in the UK, assuming it is not performing any other regulated activity in the UK, is not required to be authorised by the FCA.

Legal fund vehicles and structures. What are the main legal vehicles used to set up a hedge fund and what are the key advantages and disadvantages of using these structures? UK vehicles are rarely used as hedge funds vehicles. It is possible to establish a hedge fund in the UK, although few managers have chosen to do so. Such a vehicle would take the form of an investment company with variable capital, an authorised unit trust or an authorised contractual scheme.

Any of these vehicles would require authorisation by the FCA as a qualified investor scheme QIS , which, as its name suggests, is a form of authorised collective investment scheme available to certain types of qualified investor.

Fund Operator | Ecorys

However, to date, managers have preferred to retain the flexibility of an offshore vehicle rather than seek to run hedge strategies through a QIS. Tax treatment. What is the tax treatment for hedge funds? Hedge funds are typically structured as offshore partnerships or companies.

Partnerships that are " tax transparent " for example, Bermuda, Cayman or Jersey partnerships are not themselves chargeable to tax on partnership profits. Instead, investors in the limited partnership hedge fund are taxed on their share of the partnership profits, as if they held the underlying investments.

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If a company form is preferred, typically an offshore such as a Bermuda, Cayman or Guernsey limited company is chosen as the hedge fund vehicle. If the offshore company is properly maintained as tax resident exclusively in its offshore home country without any permanent establishments onshore, its profits are only chargeable to tax in the offshore location. From a UK perspective this means in practice it is essential that central management and control typically exercised through board decisions of the offshore hedge fund company is kept outside the UK and that the affairs of the hedge fund and its management vehicles are arranged so that the conditions of the UK investment management exemption are satisfied.

The UK offshore fund rules apply to UK resident investors in hedge funds. The operation of these rules means that UK investors' disposal gains from fund interests in such funds are taxed as income at higher tax rates for individuals rather than capital gains, unless the fund distributes or reports all its applicable income annually and is certified by HMRC as a " reporting fund ".

The UK investors are currently chargeable to tax on all fund income distributed and reported to them whether in fact received or not. Can participants redeem their interest? Are there any restrictions on the right of participants to transfer their interests to third parties? Redemption of interest Hedge funds are typically structured as open-ended vehicles, meaning that the investor is able to redeem its interest. Assuming the hedge fund is structured as a typical offshore vehicle, there is no minimum redemption frequency and the liquidity provisions are simply mandated by the fund's constitutional documents.

Claims should be submitted directly to the CSO and appointments can also be made to discuss individual claims by contacting them at the address below. Claimants should submit their claims to the CSO in writing including e-mail using the specific claim forms created for this incident. Claims should be presented clearly and with sufficient information and supporting documentation to enable the amount of the damage to be assessed.

Each item of a claim must be substantiated by an invoice or other relevant supporting documentation, such as work sheets, explanatory notes, accounts and photographs. It is the responsibility of claimants to submit sufficient evidence to support their claims. It is important that the documentation is complete and accurate. Claims should be submitted as soon as possible and, in any event, no later than three years of the date on which the damage occurred. The Incident. The vessel was loaded with 2 metric tons of heavy fuel oil and metric tons of marine gas oil.

An unconfirmed quantity of the oil spilled into the sea causing pollution damage to the east coast of Salamina Island and coastal areas in the vicinity of the Port of Piraeus and Athens. To view the full incident case study please click here.