LABUAN PRIVATE FUNDS
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Labuan Financial Services Authority (“Labuan FSA”) has re-issued the Guidelines on establishment of Labuan mutual funds including Islamic mutual funds which came into effect on 1 January 2014 (the “Guidelines”). The Guidelines supersedes the earlier Guidelines on Mutual Funds in Labuan issued in April 1998 and updated on 19 August 2013 by the Labuan FSA.

The mutual fund or fund sector in Labuan is legalised primarily under the Labuan Financial and Services And Securities Act 2010 (“LFSSA”) and the Labuan Islamic Financial and Services And Securities Act 2010 (“LIFSSA”) which allows for the structuring of mutual funds as a Labuan company, a corporation incorporated under the laws of any recognised country or jurisdiction who is a member of the International Organization of Securities Commission (IOSCO), a partnership, a protected cell company (“PCC”), a foundation or a unit trust. Labuan Islamic mutual funds shall operate in compliance with Shariah principles.

Mutual fund activities mean:

  1. collects and pools funds for the purpose of collective investment with the aim of spreading investment risk; and
  2. issues interests in a mutual fund which entitles the holder to redeem his investments that is agreed upon by the parties and received an amount computed by reference to the value of a proportionate interest in the whole or part of the net assets of the aforesaid types of entities, as the case may be,

and includes an umbrella fund whose interests in a mutual fund or units are split into a number of different class funds or sub-funds and whose participants are entitled to exchange rights in one part for rights in another.

Labuan mutual funds can either be in the form of private fund or public fund.

Labuan Private Funds
  1. INTRODUCTION
    1. Labuan private fund means mutual funds whose securities are not offered to the general public and are owned or held by:
      1. not more than 50 investors where the first time investment of each of such investors is not less than RM250,000 equivalent in any foreign currency; or
      2. any number of investors where the first time investment of each of such investors is not less than RM500,000 equivalent in any foreign currency.
    2. Labuan private funds, prior to its launching shall notify Labuan FSA in writing pursuant to section 28 of LFSSA and section 33 of LIFSSA, and lodge an information memorandum through either one of these licensed entities, i.e. Labuan trust company, Labuan bank including Islamic bank, Labuan investment bank including Islamic investment bank or Labuan fund manager which shall reasonably be satisfied that:-
      1. The information memorandum or such other offering document refer to a Labuan private fund; and
      2. There is no element of fraud involved in the establishment of the Labuan private fund.
  2. INFORMATION MEMORANDUM OF LABUAN PRIVATE FUND

    The information memorandum of the Labuan private fund should provide full, true and plain disclosure of all facts and circumstances that would facilitate a reasonable assessment by a prospective investor in determining whether to purchase or subscribe to the private fund and shall contain at least the following disclosures:-

    1. General Information
      1. General description of the fund including date of issuance, mandate/objective, legal form and structure, tenure, target fund size and geographical focus. For Labuan Islamic private fund, the description must state that the fund shall only participate in operations, administrations, investments and all other activities that are in compliance with Shariah principles.
      2. Where all or any part of the information memorandum is not in the national language of Malaysia or English language, a translation into the national language of Malaysia or English language of the information memorandum or that part of the information memorandum, verified in a manner satisfactory to the Labuan FSA.
      3. Names, address, profiles and relevant information of the director/general partner/designated partner/trustee/council member (Board of the private fund), as the case may be depending on the structure of the fund.
      4. The profile of the promoter/custodian/trustee/fund manager, whichever applicable.
      5. The profile of the “qualified person” as its Shariah adviser in the case of Labuan Islamic private fund. “Qualified person includes a corporation having in its employment at least one individual that possesses the necessary qualifications and expertise in Islamic commercial law and Islamic jurisprudence in line with section 2 of LIFSSA
      6. All fees and costs that will be borne by the investors.
      7. The capital and income distribution policy of the fund.
      8. A statement in the information memorandum containing the following:
      9. “Labuan FSA takes no responsibility for the contents of this information memorandum, makes no representations as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon any part of the contents of this information memorandum.
      10. An investor is advised to clearly understand the risk(s) of the investment, seek professional consultancy, if necessary and request for sufficient information to enable them to make a reasonable evaluation of the investment.”
    2. Investment strategy
      1. The investment strategy including the investment policies and objectives and type of securities in which the fund intends to invest.
      2. The names of all underwriters and amount proposed to be underwritten by each underwriter.
      3. Summary of the key features of the fund which can facilitate an investor in considering and comparing any similar investments on offer which shall include at least the following information:
        1. Issue price of the shares.
        2. Nature and significant expenses to be incurred by the fund.
        3. Statement of the potential risks of investing the fund.
      4. The extent to which it intends to invest in derivatives and unlisted securities. If it is intended for the fund not to invest in any of such investments, the information memorandum must include an appropriate statement to that effect.
      5. The investment and borrowing limitations of the fund. Where applicable, this should include an analysis of the risks by its nature including the risks of the country and region where the fund intends to invest.
    3. Financial results
      1. The financial projections of the fund including projected cash flows and profits, given its nature, investment policies and objectives.
      2. The proposed minimum subscription proceeds net of costs (e.g. underwriting fees related to the offer).
      3. The fund’s policy on submission of financial reports including interim results and annual financial statements of the fund to its subscribers.
    4. Redemption policy

      Information on fund redemption policy, which include but not limited to the procedure for redemption, timing, events where redemption right is suspended and pricing redemption or subscription of unit/shares of the fund.

    5. Material changes

      If there is any change which materially affects any of the matters required to be disclosed in the information memorandum, or the matters disclosed in the information memorandum, the fund manager of the Labuan private fund shall within 30 days incorporate such changes to the information memorandum and provide a copy of supplementary/amended information memorandum to each of investors and Labuan FSA.

  3. OPERATIONAL REQUIREMENTS OF LABUAN PRIVATE FUND
    1. Submit an audited financial statement of its promoter and fund manager, where applicable, for the three preceding years along with the lodgment of information memorandum.
    2. The issuer of the private fund must provide a copy of the information memorandum to each of the investor.
    3. A private fund may appoint its fund manager, fund administrator or other service providers.
    4. The shareholder and every members of the Board of the private fund including any other relevant person must be fit and proper persons in accordance with the Guidelines on Fit and Proper Person issued by Labuan FSA.
    5. Labuan private funds that have reached their maturity period shall notify Labuan FSA in writing within one month after its maturity.
    6. Ensure fair and orderly winding down of the matured fund including having an auditor to ensure that all assets have been properly returned to investors.
    7. Comply with the relevant laws and regulations in the jurisdictions where it intends to operate including obtaining the necessary approval.
    8. Maintain adequate and proper accounting and other records in line with the Directive on Accounts and Record-Keeping Requirement for Labuan Entities issued by Labuan FSA that will sufficiently explain its transaction and financial position and indicate clearly its names on its letterhead, stationery and other documents.
    9. Ensure compliance with the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 and Guidelines on Anti-Money Laundering and Counter Financing of Terrorism which is relevant to Labuan IBFC.
    10. Ensure proper policies and procedures are in place to ensure a sound compliance framework which safeguards clients’ interests.
  4. EXISTING LABUAN PRIVATE FUND GRANTED CONSENT UNDER LOSIA

    Existing Labuan private funds previously granted consent under Labuan Offshore Securities Industry Act 1998 (LOSIA) which do not comply with the new requirement under LFSSA or LIFSSA may remain status quo until the maturity period of the fund. However, these private funds are still required to notify Labuan FSA in writing within one month after the maturity.

  5. LABUAN PRIVATE FUND FEES
    1. The Labuan private fund is required to pay a one-off lodgment fee of RM2,000 for each information memorandum lodged with Labuan FSA.
    2. If the Labuan private fund uses a structure based on a protected cell company (PCC) incorporated under the Labuan Companies Act 1990, the annual fee payable are as follows:-
      1. RM5,000 (General assets or “Core”); and
      2. RM2,000 (Each cell)
    3. The subsequent payment of annual fee for Labuan private fund using PCC structure is payable not later than 15 January of each year during which the registration is valid.

For more details, please contact us at info@kensington-trust.com

The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.