Well done for tracking us down and thanks for checking us out.
We are a diverse group of funds lawyers that have come from far and wide and now happen to be all under the global roof of one of the leading offshore law firms, Harney Westwood & Riegels. This blog was born from wanting to try and address everyday questions we receive from our clients such as “Why do I need an offshore fund?”, “How do I go about setting one up?” and “Why are you lawyers so damn expensive?” (a common misconception).
Wanting to be good Samaritans (and hopefully remove the common misconception), Lewis Chong and I started looking around online and were surprised to see that there was not a lot of helpful information for people with these types of questions. So, after a couple of cold Heinekens one evening, we decided to create this blog.
There’s an audible buzz in our funds team at the moment. Not the usual, hum-drum whir of the air-conditioning, but a genuine feeling of excitement that we’re involved in something cutting-edge, something creative and something potentially so disruptive that it could change the way we do business entirely. Continue reading
Sometimes an investor fund dispute is unavoidable. So what strategies can fund managers deploy to resolve investor fund disputes? Sadly, there is no one-size-fits-all approach, but in this post I will highlight some effective and commonly-deployed tactics. Continue reading
We are often asked by managers why investor fund disputes happen and how they can be prevented. It’s a bit like asking, “can car accidents be avoided?” and I’d answer both questions with a “Not always, but there are certainly situations that can be avoided.” As my old headmaster used to say to me “Gobin, be in the right place at the right time”, (although more often than not I wasn’t…). As an investor and as a manager, you absolutely need to be. I guess that’s why I became a lawyer instead!
Investor fund disputes come in all shapes and sizes, from issues regarding valuation of fund assets, fund liquidity, inter-fund transactions, insider trading, ponzi-schemes, to undisclosed manager fees, misallocated expenses and undisclosed conflicts of interest, to name just a few. One of the most common forms of investor fund disputes revolves around the use of side letters, particularly relating to enforceability, inconsistencies between side letters and offering/constitutional documents, and the use of nominees to enter into side letters on the investor’s behalf. Another difficult question relates to the investor’s ability to challenge audit holdbacks, and when excessive use of holdbacks constitutes a red flag to investors.
Having worked as a funds lawyer through the 2008 financial crisis and advised various Cayman funds on the meltdowns that followed, it’s easy to agree with the opening remark in the Privy Council’s recent judgment in the Primeo case1 that “the path to redemption is not always smooth.” The Privy Council has provided helpful confirmation of the earlier decisions in the Cayman Islands Grand Court and the Court of Appeal that under Cayman Islands law “redemption” of shares means redemption in accordance with the terms set out in a fund’s articles of association. Once the redemption process in the articles has been complied with, the investor is taken to have redeemed its shares and become a creditor in respect of its redemption proceeds. Payment by the Company of the redemption proceeds is not an inherent part of redemption.
What was the Primeo case about and why does it matter for offshore funds today?
I am not just the black sheep of my family; I am the black sheep who stormed out of the farm, sought out the neighbourhood wolf pack and then asked if he might be able to join.
I come from a family of doctors, nurses and teachers who have spent their lives working exclusively in either the truly incredible and freely available British National Health Service or the state sponsored comprehensive school system, which provides a free education to anyone and everyone in the UK. All of these roles are incredibly noble and I remain very proud of the careers my family have chosen.
So it is safe to say that when I elected to go down the path to becoming a lawyer, there were a few furrowed brows. When I then mentioned I wanted to start by assisting major corporations with their legal affairs before moving onto the investment funds industry, frowns began to form. And when I finally announced that I was going to take this vocation into the offshore environment, the tears began to flow accordingly. The sheep in wolf’s clothing had arrived.
You may have heard that the BVI and the Cayman Islands are introducing registers of beneficial ownership. The good news is that, for the funds industry anyway, which is being engulfed by more and more regulatory red-tape, this should be one of the least onerous new developments to your business.
The BVI legislation in relation to the beneficial ownership register comes into force on 30 June 2017 and the Cayman legislation comes into force on 1 July 2017. Each requires information about the beneficial ownership of BVI business companies and Cayman Islands companies (including LLCs) to be uploaded onto a secure and private register maintained within the relevant jurisdiction.
The BVI International Tax Authority (ITA) announced yesterday that the BVI’s AEOI portal, BVI FARS, is now open for reporting under the OECD’s Common Reporting Standard (known as CRS). So, what do you have to do and by when?
I’m sorry if I got anyone’s hopes up with the title to this post. Unfortunately, this is not going to give fund managers magical insights on how to secure that crucial investment to launch a fund or take an existing fund to the next level. However, this post may help keep some fund managers out of trouble!
I am often approached by clients and contacts with queries about the marketing of their fund interests internationally. This may be because my business cards and email signature state that I am a “Practitioner of Foreign Law” – perhaps people think I am able to advise on the laws of every “foreign” jurisdiction!
The bad news for people with such queries is that I am usually not qualified to answer specific queries on marketing in particular jurisdictions – I only practice Cayman and BVI law. However, the good news is twofold:
1. Asking these types of questions is the right thing to do! All our fund manager clients are (hopefully) aware of the various laws, regulations and rules that govern marketing fund interests in their home country. What every fund manager should also know is that they need to tread very carefully when marketing fund interests overseas. My fellow Offshore Funds Bloggers have written some useful posts on the European Union’s Alternative Investment Fund Managers Directive here and here. Although the funds marketing regime in Europe can be considered one of the most stringent in the world, it is worth remembering that almost every other jurisdiction will have laws and regulations on how (and to whom) fund interests may be marketed there. For example, managers in the United States will be very familiar with the careful planning needed to ensure that their funds fall within the various exemptions and safe harbours of the Securities Act and Investment Companies Act (not to mention state-by-state blue sky filing requirements!). Continue reading
Don’t all rush at once with your XML files, but the Cayman Islands Tax Information Authority (TIA) confirmed last week that its automatic exchange of information (AEOI) portal is now open again for notification and some reporting functions. Those fund administrators who have taken on the task of processing the notification and reporting obligations for Cayman funds are now busy making sure that the funds are properly registered on the portal so that they can file the relevant reports later in the Summer under the Cayman legislation implementing US FATCA and the OECD’s Common Reporting Standard (or CRS as everyone knows it).
So, what are the key dates in 2017 for Cayman funds and AEOI?
|Early May 2017
||New AEOI portal user guide for CRS/US FATCA was published here
|Mid May 2017
||CRS and US FATCA notification/registration function now available on AEOI portal, including variation in reporting obligation, and US FATCA XML reporting
||Updated AEOI portal user guide available with detailed CRS user guidance
|Mid June 2017
||CRS reporting function available on AEOI portal
|30 June 2017
||CRS and US FATCA notification/registration deadline for Cayman financial institutions
|31 July 2017
||CRS and US FATCA reporting deadline for Cayman reporting financial institutions, for the 2016 reporting year
|31 July 2017
||Deadline for correcting any errors for US FATCA reports for 2014 and/or 2015
|31 December 2017
||The review of Pre-existing Lower Value Individual Accounts and Pre-existing Entity Accounts for CRS must be completed
What else should Cayman funds have done or be doing?
After a highly educational trip down to Buenos Aires at the end of last year, I couldn’t help but be encapsulated by everything that was going on in Argentina. It absolutely felt like a country that was finally moving in the right direction and the Tax Amnesty was a large part of that. On that basis, I took the time out to interview the head of our Montevideo Office, Horacio Woycik to gauge his views on how 2017 is playing out:
Thanks for taking the time to speak to me Horacio. I noted that on 31 March 2017, Argentina concluded one of the world’s most successful tax amnesties, something of which you must be very proud of as a native Argentinian. Could you tell our blog readers a little more?
Thanks Phil. Although the Argentina Government was cautiously optimistic when announcing the Tax Amnesty on various assets[i] a year ago, the results exceeded all expectations, with $116.8 billion assets declared in total. This is impressive, particularly compared to the $1.7 billion declared under the former government’s Tax Amnesty programme between 2013-2015.
That’s a truly incredible result. What do you put it down to?
The real estate sector is ripe for international private equity fund managers – and offshore fund vehicles are just the ticket for investment in property portfolios.
When I volunteered to write a guest blog (for our funds team) this month, I must admit I was slightly filled with dread when they said yes with (in my view) rather inappropriate amounts of enthusiasm. What do I know about offshore funds as a corporate and commercial lawyer, who has more recently been turning her hand to corporate restructurings in a flattish transactions market? Well, the answer is in fact quite a lot about what offshore funds are being used for, particularly in the property market in the UK.
I regularly act for residential and commercial property investors and those who lend to them and I also have a (probably) slightly unhealthy interest in Rightmove’s sold property prices. What better credentials do I need?
With a real estate property magnate in the White House and the increase in property investment generally, the real estate sector is ripe for international private equity fund managers to tap into.
We speak to a lot of emerging managers and we are always pleased to hear when they are looking to expand their investor base and bring in non-US and tax-exempt US investors (such as pension funds and charitable entities), because that is where we come in.
What makes us less happy is when we hear (which we do) that some managers are turning down allocations because creating a master-feeder structure with an offshore vehicle to accept those investors has traditionally been prohibitively expensive. In this current environment of capital raising, turning away potential investors is particularly difficult to contemplate.
Always looking for innovative solutions, we wanted to solve this problem and saw an opportunity to use the BVI “approved fund” vehicle to link up with a domestic limited partnership or limited liability company to form a cost-effective mini-master structure. This has enabled managers who have a proven track-record with a domestic fund to branch out into accepting investments of any size from non-US and tax-exempt US investors.
We’re told a lot these days about why capitalism has failed us. We’re told that greedy bankers and irresponsible CEOs need to be reined in with more stringent regulations and that wealth should be more aggressively redistributed. Perhaps. But greed can also be a vehicle to something deeper and more soulful.
You would have every right in the current international political and social climate to read these words, written by a very successful investment fund manager and struggle to take them in. I know I did. I almost felt as if the author was setting up an enormous challenge for himself to beat the general stigmas that surround fund managers and certainly I prepared myself to get to the end of his book and conclude that he’d failed.
But how wrong I was.
The United Kingdom served its Article 501 notice today, giving two years’ notice to leave the European Union. Managers of offshore funds, as well as everyone else here in the UK, now have more clarity on the Brexit timetable, with the UK scheduled to be out of the EU in March 2019. Much has been uncertain since the UK’s referendum in June last year, and that’s not likely to end until the final exit terms are agreed, but it’s clear that the effects of Brexit will be felt beyond the UK and Europe. Brexit negotiations are expected to be intense and politically complex (especially with French and German elections later in 2017 and Scotland’s demand for a further independence referendum before Brexit finally takes effect), with the UK’s stated aim, in its Article 50 notice, of agreeing a “deep and special partnership, taking in both economic and security co-operation” between the UK and EU post Brexit.
So what impact will Brexit have on offshore funds?
“We just spent the time staring at your arse in that tight cream dress, bending over the boardroom table” was the comment from a client that completely disarmed me as a newly qualified corporate lawyer. I was at a predominantly male completion dinner with some of my colleagues and a male management team, having just worked that “arse” off completing a massive management buy-out in record time, culminating in 72 hours working with no sleep.
Fortunately, during my career, explicitly sexist comments like this have been rare. But being in a room filled with men and finding it tough to break into the conversation or feeling like I am suffering from a language barrier (when everyone is actually speaking my native language) has been a common theme. I find it difficult to put my finger on what it is that I find challenging about these situations, particularly when I work well with my male colleagues and clients, and count many men as my close friends. On a social level, I hold my own with men and women alike. Kim Elsesser, business psychologist, calls this “the sex partition”. Forming new business and social relationships is easier with people who are similar to us and, generally, the same sex. “The communication is easier and more predictable, and it results in greater trust”. And, taking this further, breaking into groups of the opposite sex, particularly in a competitive, marketing environment, is even harder.
The Financial Times reported in November last year that, according to research examining over 26,000 funds across 56 countries, only one in five has a female portfolio manager, a figure which has not improved since the financial crisis and in 2015 women held only 10.3 percent of C-suite positions in the hedge fund industry. Research also shows that, despite the evidence that women-owned or women-managed hedge funds outperform the industry, women-run funds continue to find capital raising more difficult than their male peers. This has led to many asserting that women must work harder and perform better to achieve the same results.