As the world of cryptocurrency changes pretty much as regularly as I change my underwear (just to be clear mum, that is a lot, I promise), one of the very common questions we are asked by prospective managers looking to set up a new crypto focused fund is whether they can take in subscriptions in a digital currency of some form, whether that is from their own wallet or from an outside investor’s stash.
We are delighted today, on International Women’s Day, to host a blog from Georgie Loxton. I first connected with Georgie when she commented on my blog about women in the funds industry on this day, last year. Little did I imagine back then that, one year on, Georgie would become a friend, a neighbour and a collaborator and that I would become an avid reader of her thoughtful and insightful blog. As a woman, an investment manager with 14 years’ experience managing other people’s money and as someone who is passionate about making investing more accessible to women, Georgie is extremely well positioned to talk about women and money. Enjoy.
The Cayman Islands government kept funds lawyers busy over Christmas and into the New Year by publishing a draft of updated laws and regulations in December which affect Cayman Islands investment funds. This blog briefly summarises those changes, please let any of the blog team know if you’d like more information or advice on any of them or have a look at our more detailed client alerts in the links below.
In today’s environment of high-profile hacks and cyber security breaches, it’s not a huge surprise to me that the majority of my fund manager clients who trade digital-assets have a distrust of institutions that claim that they can safeguard their assets. In addition, despite the exponential growth of managers trading digital-assets over the past few years, there is still a dearth of service providers willing and able to service the industry (custodians included) which means the prices that institutional custodians currently charge are not yet at levels that can be tolerated by emerging managers. Finally, there’s the question of frequency of trading; by placing their digital-assets with a third party, many managers feel that this will slow down their ability to react to market volatility and take advantage of arbitrage opportunities between different exchanges.
The combination of these factors (perceived security risks, high costs and a reduced speed of trading) means that the majority of my fund manager clients trading digital-assets prefer to safeguard their own assets through the use of cold storage e.g. by sharding their private keys, putting them on individual thumb drives and, sometimes, even placing them in different safety deposit boxes in various locations. The number one question I get asked by my clients at the beginning of any engagement is can they self-custody their assets and, if so, should they do this? With this mind, I thought it would be helpful to set out the regulatory requirements (from a BVI and Cayman law perspective) together with what we see as current market practice.
The phenomenal rise in the price of bitcoin during the course of this year mirrors the extraordinary amount of enquiries (and subsequent instructions) that our team has received in relation to the formation of cryptocurrency funds and digital token launches.
As cryptocurrencies and digital tokens continue their aggressive push into the mainstream investment world, regulators and lawyers worldwide are grappling with how to fit this square peg of digital assets into the round hole of the existing legal and regulatory framework. As a result, this is one of the most exciting (and, if I am honest, slightly scary) times in my legal career and my day-to-day mindset amusingly mirrors the extraordinary fluctuation in the price of most of the cryptocurrencies this week. I know my colleague Oliver Bell will be blogging about this next week and so for now, I’ll focus on one of the narrower areas our team has been trying to get its collective head around.
In what I fear may be the least anticipated sequel since Sharknado 5, the second part of this blog looks at two real world scenarios, taken from recent transactions in the hospitality sector, that illustrate the flexibility of the BVI’s corporate code and why it matters for investors in this space. Both are based on transactions which we recently completed, but with names and certain details changed to protect client confidentiality.
As Chair of the BVI Investment Funds Association, I eagerly awaited the publication of the Capital Economics Report like a kid in the run-up to Christmas.
The BVI has a long-standing reputation in this industry for excellence, dating back to the publication of the Mutual Funds Act in 1996, but we have never had the statistics to back up every practitioners’ firm belief in the jurisdiction that we have one of the globe’s largest and most flexible fund jurisdictions.
For some readers of this blog, combining the words ‘Virgin Islands’ and ‘hotels’ in a sentence probably conjures up a beachfront suite, with a view of turquoise ocean and perhaps, a hammock hanging invitingly just outside, shaded by a solitary palm tree. If you are currently suffering through the dank days of darkest November, I can only apologise for putting that image in your head.
However, for myself and the corporate team at Harneys, the connection between the hotel industry and the jurisdiction is not limited to properties located in our corner of the Caribbean. During 2017, we have worked on hotel and hospitality transactions involving British Virgin Islands holding company structures with a combined value of more than US$1 billion and involving a change to the indirect ownership of more than twenty hotels around the world (some of them actually in quite cold climates).
It has been a real pleasure to spend a lot of time recently in New York, one of my favourite cities in the world. This is undoubtedly the best time of year to see it as well as the leaves start to change colour, the festive lights start to twinkle and it is impossible to resist getting the running trainers on and heading out for a plod around the majestic Central Park.
Until you get up there and realise that the entire city runs faster than you.
The first call to arms was a true honour; our global funds team had been shortlisted for the Offshore Law Firm of the Year in the very prestigious HFM Week Awards and so Oliver Bell and I trooped up to firstly buy something to wear (it was decided that “Hurricane Chic” was not the right look) and then secondly to attend the awards at the fantastic Cipriani on 42nd Street.
I have stared at this blank screen for twenty minutes now.
Desperately wanting to write a blog, but simply not knowing where to start or what possible words I can use to accurately describe the “experience”.
For those that are not aware, the British Virgin Islands was hit head on by Hurricane Irma earlier this month. It became the largest storm the Atlantic had ever seen and the eye of the storm absolutely swallowed up and spat out our beautiful islands.
You can read a lot of narratives online already and view the truly disturbing photos and videos that are apparently everywhere.
I have to admit, I have barely looked at nor read anything at all in the last few weeks. I don’t need to. It’s all there, burned into the retina.
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.