Monthly Archives: April 2016

Private Placements and AIFMD


AIFMD. Love it or loathe it – and let’s face it, it’s not the most popular law – the Alternative Investment Fund Managers Directive (AIFMD) has changed the way that alternative funds are marketed to investors in Europe. Ultimately this will hopefully allow European and non-European alternative investment funds (AIFs) to be marketed to professional investors in Europe by way of a passport, similar to the way that UCITS funds can be passported round Europe. For now, though, the passport only works for European AIFs marketed by European managers, with non-European AIFs and managers waiting for the European Securities and Markets Authority (ESMA)’s further recommendations on extending the passport to non-European jurisdictions. Your typical Cayman or BVI investment fund isn’t capable of being passported yet and so needs to be marketed using the AIFMD private placement regimes in each country.

So how do the AIFMD rules work for Cayman and BVI AIFs being marketed to professional investors in Europe by non-European managers?


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AIMA adds voice to those defending offshore funds

I was really pleased to see yesterday that AIMA, the Alternative Investment Management Association, has published a paper which gives a really clear explanation as to why so many of the world’s alternative investment funds are set up in offshore jurisdictions such as the Cayman Islands and the BVI. As the paper comments “What sets offshore funds – and particularly, offshore alternative funds – apart is the combination of tax neutrality, investment flexibility and sophistication allowed by offshore alternative fund structures.

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Why offshore? A lesson from David (and Ian) Cameron

As we saw today in the House of Commons, David Cameron is quite capable of defending himself over his ownership of shares in an investment fund before he became Prime Minister and so this blog is certainly not intending to act as cheerleader or critic of the points he made. But his circumstances create a valuable “teaching moment” for this blog and for those that question why investment funds are traditionally set up offshore in the first place.

Blairmore Holdings Inc, the entity in which he held shares from 1997 through to 2010, is an investment fund. Originally incorporated in Panama, it was operated out of the Bahamas and moved to Ireland in 2010. It invests in global equities and has a minimum subscription amount of US$100,000. Interestingly, it also has a mandate ensuring that almost all the fund’s income from its underlying investments should be paid out every year, rather than stored within the fund indefinitely, resulting in every single investor in that fund paying the appropriate level of tax on the relevant gains in their home jurisdiction, which Mr. Cameron duly did.

Therefore, investing in this type of fund structure doesn’t even amount to lawful tax avoidance, let alone illegal tax evasion. So why use “offshore” structures for these types of fund vehicles in the first place if there is not a “tax” angle to it?

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Can this David really beat multiple Goliaths?

With humble apologies for the slight tangent, something quite incredible is happening in the English Premier League right now. This time last year, Leicester City were firmly rooted at the bottom of the table and with only nine games to go, they were certainties for relegation. Despite managing to scrape their way through to eventual survival (which was an impressive feat in itself), with relatively minimal expenditure on new players in the summer of 2015, they entered this season as the least favoured team in the entire division and their odds of winning the league were set at 5000-1, which, to give some form of comparison, are precisely the same odds you can get on Elvis being alive.

Well my friends, dust off those blue suede shoes and start believing in the return of the King once again.

With only six games to go, Leicester are seven points clear at the top of the table. A large number of the nineteen clubs below them have, on paper, much better teams. They have spent a lot more money for starters. They have more experienced coaches. They have a much wider fan base and therefore generate a much higher revenue. They have so called world-class players that have been brought in from across the globe with a pedigree to enable them to win things for their employers. And yet the Leicester City juggernaut continues to roll, but (spoiler alert) unlike the film “Duel”, this truck does not look remotely likely to fall off a cliff*.

So, Phil, with this of course being (mildly) interesting (to you), why on earth is this relevant to this blog?

Well, I couldn’t help but read our previous blog on Emerging Manager’s Forum and think there is actually a comparison to be made here. Whilst it goes without saying that those managers who have access to the deepest resources, the very best management, the stellar principals, the most high-tech infrastructure and the widest market spread set themselves up for having the best possible chance of success, there is absolutely no reason that the smaller, emerging manager cannot take a leaf out of Leicester City’s book. They have brought in a manager who has a clear vision as to how the club should be run. They have invested prudently and wisely within their means and ensured that they have a structure that allows the vision to flourish. When you combine that with an incredible level of hard work, a sprinkling of good fortune and a belief that they can achieve something special, they are suddenly able to take on the very best in their industry.

So, smaller football clubs, just because you can’t afford Lionel Messi and you don’t have 100,000 people coming to watch you every week, it does not mean that you cannot rise to the top. And as for you emerging managers, just because you are not George Soros and don’t have US$100 billion AUM, it does not mean you cannot find a way to develop your strategy and attract the very best investors. Find your focus, build an infrastructure to appropriately supplement your strategy within the financial boundaries in which you are placed and above all else, believe in yourself and those advisers you have placed around you.

Everything else will follow. Including Elvis.

* This article comes with a huge apology in advance to all of the Leicester City fans whose magical story I have clearly just jinxed.