The management of investment funds is normally carried out by fund management companies which are usually subsidiaries of major banking and financial services groups.

In December 1988 both Jersey and Guernsey were granted "designated territory status" in the United Kingdom in accordance with section 87 of the UK Financial Services Act 1986. This designation followed the introduction of similar legislation in the Islands for funds wishing to benefit from this status. The granting of designated territory status by the UK authorities means that the UK has accepted that Jersey and Guernsey afford equivalent protection to investors to that available in the UK. As a result fully authorised local funds can be freely marketed in the UK. There is a lower level of funds authorisation in both Islands which would allow those funds, once authorised, to be marketed in the Islands and to sophisticated investors elsewhere.

The following legal vehicles are used by collective investment schemes:

Unit trusts

A unit trust is a non-corporate entity controlled by a trustee and the investors' interests are represented by units which can usually be purchased and redeemed at prices reflecting the net asset value of the fund.

Open-ended investment companies

These are the corporate equivalent of unit trusts. Investors' interests are represented by redeemable shares.

Investment trust companies

These are known as closed-ended investment companies as their capital is fixed and therefore purchases and sales are arranged through the managers or a stock exchange.

Limited partnerships

As set out in chapter 2.

Umbrella funds

An umbrella fund can be a unit trust or an open-ended investment company offering different classes of units or shares to meet the investment objectives of a wide range of investors. These types of vehicles are often used due to ease of administration and the ability to switch from one class to another. Usually a wide range of classes is offered including "money market" funds (in a variety of currencies) as well as bond and equity funds investing in a large number of currencies and areas. From 1 February 1997 it has been possible to establish such funds in Guernsey as protected cell companies. Further details of such companies are set out in chapter 7.

The major growth area in the funds sector has been the creation of specialised closed-ended funds for institutional investors. Such funds are specialised in either the nature of their investments or the group of investors participating. Such funds could include either illiquid investments or financial instruments which would not be regarded as suitable for public investment (e.g., LDC debt, corporate bonds or derivatives) and hence are established as closed-ended funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Jonathan G. Hooley on Tel (indirect line): + 44 (0) 1481 721000, Tel (direct line): +44 (0) 1481 719544, Fax: +44 (0) 1481 722373.