Category Archives: Advanced funds

ARE INSTITUTIONAL US MANAGERS CONTINUING TO PREDOMINANTLY USE CAYMAN STRUCTURES? WHY?

Are institutional US managers continuing to predominantly use Cayman structures? Why?

The short answer is yes, but there are caveats. Many investment fund commentators were all doom and gloom for 2016. Underperformance from some of the institutional fund managers, some institutional investors pulling out of institutional funds, over-regulation in the US, cyber-security and the SEC’s treatment of managers being some of the reasons why and leading to many journalists writing headlines such as “Is this the end of the hedge fund?”

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We bag ourselves a HFM hatrick

I was of course overjoyed with the news that my colleagues in our London office and Hong Kong office had been hugely successful in their respective HFM Awards Ceremonies as HFM is a leading global publication covering the hedge fund industry and these high profile awards (which are judged on the basis of client feedback) are undoubtedly very well regarded in the industry.

But, and I can shamefully admit to this fact only now, another part of me was a touch envious.

The feeling is comparable to the one of sitting on a substitute’s bench and watching your team romp home to a glorious victory without you. Whilst of course externally you smile and whoop with delight, there is another part of you that wishes you could just get a chance to run onto the field and contribute in some way to the success.

Well, our chance to do that very thing came when we found out a few weeks ago that we had been nominated in the US as well and so finally the BVI, Cayman and Vancouver offices had their potential opportunity; could we come on in the 80th minute and bang home the third and final goal? Continue reading

Cayman LLCs – a vehicle to unlock foreign tax reclaim entitlements

In this guest post, Brian Sapadin, Executive Director of GlobeTax, discusses the benefits of tax reclamation and the opportunities presented by the new Cayman LLC draft legislation.

With the highly anticipated Cayman LLC law finally being published in draft, once unobtainable foreign tax reclaim entitlements are expected shortly to be in play for eligible investors whose Cayman fund undertakes a conversion to the new structure (or, in the case of a new launch, initially structures as a Cayman LLC). Most U.S. tax-exempts invest through offshore feeders, traditionally a Cayman limited company (Cayman LTD), to avoid Unrelated Business Income Tax (UBIT) which can be assessed to U.S. resident tax-exempt investors for gains made on leverage, including traditional margin or shorting strategies. Unfortunately, investors in such vehicles do not have access to double taxation treaty benefits, since the Cayman vehicle serves as a corporate blocker and Cayman itself is not party to bilateral tax treaties.

In a Cayman LLC — a transparent “look-through” vehicle — U.S. tax-exempts (and the fund manager) should soon be able to reap the benefits of tax treaties, for eligible markets other than the U.S., while still being shielded from UBIT.

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De-registering a fund in Cayman

There comes a time in a registered Cayman fund’s life when it needs to de-register from the Cayman Islands Monetary Authority (CIMA). This could be early on, if the fund launches but never carries on business, or much later on the fund’s winding up. It could also be anytime in between if the fund is no longer carrying on business as a regulated mutual fund, merges with another fund or transfers to another jurisdiction. A fund can also choose to de-register if it no longer meets the definition of a mutual fund, because it has become a single investor fund or a closed—ended fund, or it has become an exempted mutual fund, where the fund’s shares are held by not more than 15 investors, a majority of whom are capable of appointing or removing the directors of the fund.

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Brought to you by the letters “OECD CRS”

So I was sitting at a presentation in Rio de Janeiro (tough life, I know) recently. The topic was regulation in offshore funds and I had finished my remarks on how awesome the Cayman Islands are and why everyone should set up funds there. I’ll be honest and say that I was now looking forward to that evening’s caipirinhas by the pool.

I had talked about FATCA and AIFMD as part of my section of the presentation. However the next session had many more acronyms, including OECD CRS. This acronym stuck out as a sore thumb mainly as it is the next reporting requirement to be implemented in the Cayman Islands and the British Virgin Islands.

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Cayman Islands Director Registrations – Funds

As part of the Cayman Islands’ continual evolution of its regulatory environment, in 2014 the Directors Registration and Licensing Law introduced a requirement that all prospective directors of a Cayman Islands regulated corporate mutual fund must be registered or licensed with the Cayman Islands Monetary Authority (CIMA) before they are appointed as directors. This applies to individuals and corporate directors of mutual funds which are regulated by CIMA, whether they are resident in the Cayman Islands or elsewhere and also applies to directors of certain companies which are registered under an exemption to the Cayman Islands Securities Investment Business Law. If a director does not register or become licensed, the director could be exposed to heavy penalties, including fines and imprisonment.

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What lenders look for

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Lending to Funds — Subscription Finance Part II

Part one of this topic covered what subscription finance is, (loans to a fund secured on the undrawn capital commitments of its investors), and how it can benefit funds and their investors (increased liquidity, returns and simplicity).  This final instalment covers (briefly) the mechanics of this type of financing.

How does it work?

The subscription finance facility would work the same way as a standard loan facility.  As security for the subscription finance facility, the lender will be granted a power of attorney from the fund’s general partner (the GP) to step into its shoes and make the capital call to the investors, and/or an assignment of the right to make the capital call and to receive the proceeds of the capital calls.  Finally, there will be a charge over the bank account into which the capital commitments are paid into.

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Don’t forget to look up

Lending to Funds – an introduction to subscription finance

Nuts

“Neither a borrower nor a lender be” wrote Shakespeare and in the aftermath of the credit crunch and the global slowdown, it seems that many banks are reacquainting themselves with the words of the Bard.  And when they do lend, they are increasingly looking for more security, “safer” borrowers and higher fees.

On the face of it, a newly launched fund might not have the track record or the assets to persuade commercial lenders to lend monies to it. But these funds do have assets which they can make available to lenders – the uncalled capital commitments of their investors.

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