A Fresh Perspective on Hedge Funds: Exploring New Opportunities Post-Brexit

Abstract

Hedge funds – rather a financial term than a separate legal category – denote distinct investment funds that use sophisticated investment strategies and are ‘lightly’ regulated as compared to traditional retail-oriented funds. Largely unregulated prior to the 2007/2008 financial crisis, they are now within the tight regulatory perimeter of the Alternative Investment Fund Managers Directive (2011). This article discusses the future of the UK hedge fund industry post- Brexit and explores the opportunities offered by Luxembourg hedge fund legislation. After the exit from the EU, the UK will be considered a ‘third country’ for the purposes of the Directive. Consequently, the UK hedge fund managers will lose the EU passport to manage and market their funds to the EU investors. This article argues that Luxembourg may serve as a jurisdiction of choice for UK hedge fund managers to establish their subsidiaries and act through them to be able to continue offering their units to EU investors. The overview of the recent reforms in both jurisdictions (UK Private Fund Limited Partnership 2017, Luxembourg Reserved Alternative Investment Fund 2016 and Special Limited Partnership 2013) is discussed in terms of their competitiveness post-Brexit.