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The International Financial Services Centres Authority issues clarifications for Family Investment Funds in International Financial Services Centres. The circular defines single family entities, permits sharing economic interest with service providers within limits, and allows setting up additional investment vehicles with prior approval. The update prescribes exit options for non-family members holding economic interest and mandates a risk undertaking from family contributors before investment activities start.
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[Image omitted. See the official document.]
CIRCULAR
F. No. 333/IFSCA/FIF/2022-23
March 01, 2023
To,
All Fund Management Entities (FMEs) in International Financial Services Centres (IFSCs) All Family Investment Funds in IFSCs
Dear Sir / Madam,
Sub: Clarifications in relation to Family Investment Funds
Reference is drawn to the International Financial Services Centres Authority (Fund Management) Regulations, 2022 (hereinafter referred to as the "Regulations"), notified in the official Gazette on April 19, 2022.
In order to remove certain difficulties and doubts with respect to Family Investment Funds (as provided under Part C of Chapter VI of the Regulations), which by their very nature represent the interests of a single family; the Authority, in exercise of the powers conferred by Section 12 and 13 of the International Financial Services Centres Authority Act, 2019, read with regulation 146 of the Regulations, hereby issues the following clarifications:
For the purpose of this clause, "substantial economic interest" shall mean at least 90% economic interest, as demonstrated by the Family Investment Funds (FIF) in an appropriate manner to the satisfaction of the Authority which may, inter alia, include:
(b) A FIF shall not seek money from individuals or entities outside of the single family. However, a FIF may share economic interest with its employees, directors, FME or other persons providing services to the FIF, as per its internal policy to reward the persons providing services to the FIF or to align the interest of such persons with those of the FIF. In this regard, wherever required, the FIF may accept contributions from the aforementioned persons for the limited purpose of granting economic interest to them, which in no case shall exceed an aggregate of twenty percent (20%) of FIF's profits.
(c) A FIF may set-up additional investment vehicles subject to prior approval of the Authority and payment of fee as applicable to a FIF. Such additional vehicles, in the form of companies, limited liability partnerships, trusts or any other form as may be specified by the Authority, shall also be considered as part of the FIF for the purpose of meeting the requirements specified in the Regulations.
(d) In cases where persons outside of single family also hold economic interest in the entity of a single family up to the permissible limit, such persons shall be informed of the risks of investment in the FIF and an exit may be offered to such persons who may not wish to continue in such entity, in the following manner:
(e) Before the FIF commences investment activities, all individuals of a single family who contribute to the FIF directly or indirectly, shall give an undertaking to the Principal Officer, to the effect that they understand the risks, costs and benefits of investing in the FIF and that the usual investor protection measures such as disclosures, regulatory inspection and supervision, etc., may not be available to the same extent to the FIF as they are to other schemes in IFSC.
A copy of this Circular is available on the website of International Financial Services Centres Authority at www.ifsca.gov.in.
Yours faithfully
Sd/-
Pavan Shah Deputy General Manager Division of Investment Funds – I and New Products & Services Capital Markets Department Email: pavan.shah@ifsca.gov.in Tel: +91-79-61809844
