Author Archives: Philip Graham

Philip is a partner and expert on offshore funds at Harneys who puts his ever increasing grey hairs down to three young children, supporting Liverpool Football Club, and being married. In no particular order.

Smoke on the Horizon: investment into Cuba

USA and CUBA currency

One of my favourite aspects of working in the offshore environment is that we get to speak to fund managers based all over the world about the latest hot and trendy investment opportunities. Over the last few years we have dealt with enquiries about bitcoin, crowd-funding, acquiring a portfolio of oil tankers and real estate opportunities in Puerto Rico to name but a few of the more intriguing conversations. It constantly keeps the team on our (permanently parked under the desk) toes and there is no doubt that recently we have been part of a very regular trickle of Cuba based conversations and how to maximise the gradual opening of the borders.

When Raul Castro took over from his brother as President of Cuba in 2008, he began a long-anticipated process of political and economic reform. As a result of his strategy, the stagnant economy has been gradually coming to life, galvanised by a fledgling private sector. Diplomatic advances have been made, animosities are thawing and, slowly but surely, relations with overseas nations are being restored. With this sea change comes the possibility of direct foreign investment, a prospect historically laden with regulatory obstacles and risks – from both sides.

It is easy to see why there is excitement surrounding Cuba’s development. The tourism industry is set to explode and the relaxation in travel restrictions for Americans opens a previously-untapped market of over 300 million potential visitors. Such a vast influx of people will require utilities, hotels, ports, roads and telecoms; truly massive investment is required to improve the current infrastructure and there is cautious optimism from sponsors eager to participate in the process and Cubans looking forward to the resulting developments.

Indeed, it is the tourism sector that US News largely focused on in the following article as the best way to invest in Cuba as a US citizen:

But rather than related company stock-picking, what about direct foreign investment? Is there a way for US based investors to capitalise directly on some of the infrastructure opportunities for example?

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Why use an Outsource CFO?

In this guest post, my friend Scott Rosenthal discusses the role of an Outsource CFO and the reasons why fund managers might like to engage one. Do feel free to get in contact with Scott or myself if you would like to discuss any of this further.

There is a growing segment of the hedge fund and private equity fund service provider population called the Outsource CFO. Outsourcing has become very popular in recent years, in regards to back office, middle office, compliance (including outsourcing the investment advisers CCO), trading, and most other areas that a hedge fund needs to operate. What could be considered the final frontier of the service provider population is the Outsource CFO. The Outsource CFO model assists the start-up or smaller fund manager, who may not have the budget or the need for a full time CFO. So, instead of hiring someone who may not have the appropriate experience in order just meet the budgetary restrictions, fund managers can now opt to hire an Outsource CFO.

So why use an Outsource CFO?

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Long Live The King: Why LeBron James Helps Justify Performance Fees

For those that are not aware, LeBron James just transcended his sport. Playing against a team that some have described as the best ever and down 3-1 in the Finals (a position that no other team in NBA history has ever come back from), he produced some of the greatest basketball the world has ever seen. Hell, some of the greatest sporting performances the world has ever seen.

He threw up numbers that are mind-boggling and yet he was far more than that. Leading a decidedly average supporting cast, there was something about this Cavaliers team that clearly just kept on believing in their superstar.

Because that’s what he is.

One of the tired narratives that you regularly hear when discussing sport is why people who throw/kick/catch a ball for a living deserve to be paid such ridiculous sums of money. Continue reading

Fear and Loathing in Las Vegas

When our global funds partners decided to meet in the Entertainment Capital of the World, there was a great deal of scepticism from the rest of the firm as to how constructive our collective output from the meetings might be.

One of our kindly litigation partners even had the temerity to question whether given the performance of the hedge funds sector in 2016 so far, we would be better suited meeting at a Holiday Inn in Blackpool (for those not familiar with this UK city, try and keep it that way).

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The Offshore Funds Blog: First Year in Review

The international press has picked up on many stories during the last twelve months; we’ve seen a bailout of Greece, an American Flag raised in Cuba, Leicester winning the Premier League in England and Beyoncé and Kim Kardashian battling to be the first one to break the internet.

Well we here at the Offshore Funds Blog very much hope they don’t succeed. As our loyal followers will know, we’ve been in existence since May 2015 and to help celebrate our first year, our clever people behind the scenes have pulled together a list of the top five most-read blog posts just in case you missed them first time around.

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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.

Calling All Emerging Managers

Last week I had the privilege of representing BVI Finance, the voice of the British Virgin Islands’ financial services industry, by being a panellist at the Hedge Fund Emerging & Startup Manager Forum in New York. I joined some leading industry experts on a panel focused on how to structure your fund as an emerging manager. As we’ve previously mentioned on this blog, emerging managers form a core part of our BVI funds practice, and this was an excellent opportunity to give some practical advice to those emerging managers in the audience.

Whilst the day was full of fascinating insights, a key take-away for me was the difficulty that emerging managers are facing when looking for seed investment. The message was loud and clear; unless you have a minimum AUM of US$100m, you won’t even get past first base when it comes to the majority of professional seeders. This begs the question how you get to US$100m in the first place – classic chicken and egg/catch-22 territory. There’s no easy solution, I’m afraid; the key is to start with friends’ and family money, and build a track-record over a period of at least two to three years that simply cannot be ignored by professional seeders. Only then can you begin to approach the bigger ticket investors with a degree of certainty that you won’t have the door slammed in your face.

In light of this, it was no surprise that I was inundated with questions about our new funds product in the BVI; the incubator fund. As we’ve previously mentioned, this product was designed with an absolute focus on the emerging manager who is looking for a cost-effective, light-touch regulated fund with which to use friends’ and family money to test their strategy. In an age of generally increasing regulatory red-tape and costs, the emerging managers I spoke with that day were able to breathe a (small) sigh of relief that the BVI is looking out for them.



The author of this post is no longer with Harneys. For more information on this topic, please reach out to the key contact listed below.

Iran’s Implementation Day Arrives and Harneys is in the Thick of it

Harneys advises on first EU-approved, Iran-oriented alternative investment fund

It’s not every day that you get the chance to announce that you’ve set-up the first hedge fund, but, for the second time running (the first being the establishment of the first BVI hedge fund*), Harneys have done it, with the establishment of the very first Cypriot hedge fund, Turquoise Variable Capital Investment Fund Plc. But wait – this time, it’s a double first – as Turquoise is also the first EU-approved Iran-oriented alternative investment fund. Taa daaaaaa!

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Guest post: Internet search visibility tips for fund managers

Lewis and I had the great pleasure of attending the annual Hedge Funds Care seasonal event in New York last month, which is a fantastic cause that we feel very strongly about here at Harneys. For any of you that are not aware of their work, here are some further details:

We met a wide variety of professionals within the industry and had a number of fascinating conversations, although unsurprisingly Donald Trump seemed to feature in an awful lot of them.

One person we met was Grant Greenberg, a Director at Lumentus who gave us some really interesting statistics and advice that we thought the readership here might appreciate, and so without further ado, here it is:

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BVI shaping up to compete with the Cayman Islands

The Cayman Islands may offer sleek Ferrari style products but the BVI has packed on some muscle recently and, like the Mustang GT in this YouTube clip, is giving Cayman some competition.

Philip Graham comments on Thalius Hecksher's recent guest blog and explains why he thinks the British Virgin Islands is like a Mustang GT. 

It was with great excitement in the blog headquarters (think Dr Evil’s underground lair with far more lawyers and far less sharks with laser beams on their heads) that we posted our first guest blog this week that was written by Thalius Hecksher of Trident Fund Services. I would hope you agree that Thalius demonstrates some tremendous insight regarding the trends in the global funds industry right now and we very much thank him for taking the time to set it out so clearly and concisely.

He makes a number of fascinating points, but the key stand out for us in the BVI office was the statement that “Cayman is definitely still number one, but BVI is in its rear view mirror.

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Back to the Future of BVI Funds

Seminar examines past, present and future of BVI funds on Back to the Future Day

I just wrapped up a very interesting presentation today to a cross-section of the BVI funds industry.

I chose 21 October 2015 because it is Back to the Future Day – the day that Marty McFly travelled back to the future in in the eponymous film — and we decided to capitalise on this date by looking at the past, present and future of the funds industry. This meant a lot of discussion of the global financial crisis as well as a look ahead at the future areas of growth for the BVI funds industry.

One point which came out quite clearly from the discussion is the BVI’s growing profile as the offshore jurisdiction of choice for the emerging fund manager. We are seeing a great deal of polarisation within the funds industry – recent data suggest that 11% of active fund managers account for over 90% of total assets under management – as well as increasing fee and regulatory pressure on fund managers. This translates into a challenging road for start-up managers and this is the precise market sector which BVI had in mind when it created its new incubator and approved funds. Both of these products are designed to help different types of start-up managers get off the ground with minimal red tape and build a track record at the same time.

We have written about these fund products before, and will continue to do so in the future.

For now, however, cheers to Marty McFly and Dr Emmett Brown. Great Scott! Where has the time gone?

A large silver lining in a not-so-dark cloud

My thoughts on ESMA’s AIFMD announcement

As has been reported widely elsewhere, the European Securities and Markets Authority (ESMA) has recommended that the passport under the Alternative Investment Fund Managers Directive (AIFMD) should be extended to fund managers based in Switzerland (upon the adoption of certain pending legislation), Jersey and Guernsey.

The fact that the Cayman Islands and the British Virgin Islands were not included in this list has come as a shock to a number of commentators, but frankly we here at Harneys were anticipating this very approach being taken by ESMA for a wide variety of reasons.

I think it is very telling that as part of ESMA’s statement, they mentioned that the European Commission, Parliament and Council may wish to consider whether to wait until ESMA has delivered positive advice on a sufficient number of non-EU countries, before introducing the passport in order to avoid any adverse market impact that a decision to extend the passport to only a few non-EU countries might have.

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To Regulate or Not to Regulate

In an interesting turn of events, the Financial Stability Board has recently announced a change of direction in its post-crisis regulatory approach by confirming that it will no longer single out the world’s biggest fund managers as having the potential to pose a systemic risk to the global financial system.

Whilst this doesn’t create the opportunity that smaller managers thought it might — there were those who were hoping to take advantage of a more level playing field caused by bigger managers being tied-up with additional red tape — it is certainly good news for the fund management industry as a whole, providing the industry with a little breathing space whilst global regulators go back to their respective drawing boards in their pursuit to mitigate the greatest dangers to global economic stability.

The wider question is whether or not the investment fund industry as a whole poses a systemic threat to the world economy: a question that has divided both academics and commentators alike. A chief concern is that the fund management industry might amplify market disturbances, in the event that investors attempt to withdraw their capital at the same time. In my opinion, such a run on accounts would be highly unlikely to occur again; I would expect the majority of sophisticated managers to have already amended their funds’ offering documents to allow them to implement gates and broad suspension rights at such times of stress. Of course, this is only one piece of the regulator’s puzzle, but it serves to highlight a potential disconnect between theoretical implications based on an outmoded understanding of the fund management industry and reality.

As always, we’d be delighted to hear your thoughts.


The author of this post is no longer with Harneys. For more information on this topic, please reach out to the key contact listed below.

Singing the praises of the Incubator Fund and Approved Fund

I had the pleasure this morning of headlining (which makes me sound far more like a rock star than a funds lawyer which, just to be clear, is very far from the truth) at the BVI Investment Funds Association breakfast forum, speaking about the new BVI fund products. Whilst I think on occasions I may have expressed a little too much enthusiasm (probably due to the espresso immediately before taking the podium), there was a generally accepted acknowledgement in the room that these vehicles do allow the BVI to properly and actively market itself as the very genuine next best alternative to Cayman to house an offshore fund.

The questions I received from the floor were varied; one interesting discussion point was the KYC obligations of the fund and whose ultimate responsibility it would be to collect identification documents on the investors if the fund does not appoint an administrator. The consensus was that this is likely to fall upon the directors, adding weight and responsibility to the fiduciary duties they already owe to the fund.

Overall, there was a real sense of optimism and when coupled with the fact that the approved manager product is gathering more and more momentum (evidenced by the vast increase in licenses issued in Q1 2015), there is no doubt that the BVI is moving in the right direction.