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
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?
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.
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|
|June 2017||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?
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.
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?
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?”
Setting up a US fund and a Cayman fund is quick, easy and yes, seamless, provided that the manager chooses US and Cayman Counsel who, as part of their core businesses, structure investment funds. These are the folks who, if the manager chooses wisely, will become their trusted advisors for many years to come. If this is the case then US Counsel will work seamlessly with Cayman Counsel.
But before we get to the process, the manager needs to decide how their US Fund will work in conjunction with their offshore fund. In deciding which route to follow, US Counsel will walk the manager through the options.
This question is asked by start-up and emerging managers all of the time and for good reason. Generally it’s the manager who’s putting down their cash to set-up the Fund, albeit the set-up fees will be amortized at the Fund level when investors come-in. As such the manager needs to be extremely confident (show me a manager who isn’t extremely confident….) that they need a US Fund and the Offshore Fund, rather than one or the other. To make this decision, the manager needs to be focused and strategic with their marketing and to have discussed the pros and cons with their legal counsel. Otherwise the manager could well be wasting their own money. Let’s jump into why a manager should be setting-up a US Fund and the Offshore Fund at the same time.
The Brexit rollercoaster is showing no signs of nearing the end of the ride yet following the UK Supreme Court’s judgment on Tuesday this week. As has been widely reported, the Supreme Court confirmed that the UK government doesn’t have the power to give notice to withdraw from the European Union under Article 50 of the Lisbon Treaty without an act of Parliament authorising it to do so. The government can’t simply serve notice to leave, as it had hoped and argued before the UK’s highest court, and so it now has to put draft legislation before Parliament, which it published today, to give the government the authority it needs to serve notice.
Opposition parties have already made it clear that they may try to amend the draft legislation, which, with only one section authorising the Prime Minister to serve Article 50 notice, must win the prize for being one of the shortest pieces of legislation in recent years. Although it looks unlikely they’ll de-rail Brexit itself at this stage or even delay the government’s 31 March target deadline for serving Article 50 notice, MPs could try to take Theresa May’s strategy in a different direction from the principles she set out in her speech last week or make the government involve Parliament more in the negotiations, not just give them a vote on the final deal struck.
So what does the Supreme Court judgment mean for offshore funds?
Greetings offshorefundsblog readers. Phil and I have just returned from attending the inaugural Cap Intro West Conference in San Francisco last week. We were both honoured to be invited to speak at the conference: I joined a number of friends presenting a Private Equity and Hedge Fund Boot Camp for start up and emerging fund managers while Phil, somehow, managed to have the audience in stitches while he detailed the ins and outs of AIFMD on his panel on Navigating Fund Marketing Rules and Regulations.
As you might expect at a January conference, a lot of time was spent during the breakouts looking at the tea leaves to determine what 2017 might hold for us. I am very pleased to report that the mood was generally optimistic. Some of this may have due to the Trump administration’s intended policies to boost the US economy and some of this may have been due to the generous pours of the bar staff at the evening cocktails!
2016: what a year for the Americas. From our offices in Cayman, Sao Paulo, Montevideo and Vancouver, we witnessed a wave of fundamental – at times dramatic and turbulent – change in key markets in the Americas. From impeachment of a sitting president in Brazil, to the election of a centre-right president in Argentina to the ‘glad its over’ election in the US which ushered in centre-right control of two branches of government, 2016 brought fundamental political change across the region. Meanwhile, long-anticipated amnesty programmes in both Argentina and Brazil paved the way for large amounts of assets to be brought back into the formal economy, and away from the increasingly frigid landscapes of undeclared assets. Both programmes succeeded, perhaps even beyond expectation, as investors and common citizens embraced the welcome opportunity to regularise their positions, thus adjusting to a world where transparency and information exchange are the rule. For a jurisdiction like Cayman, this is all potentially good news. Let me explain why.
After more than 15 months in the wilderness, with goodness knows what to keep him entertained during his recovery from multiple back surgeries, Tiger finally came back to the PGA Tour this weekend and competed in the Hero World Challenge in the Bahamas.
The entire sporting world watched and waited; could he begin down the road to superstardom once again?
I am very pleased to be the first offshore funds blogger to give a shout out to our friends and colleagues at harneysoffshorelitigation.com.* All the very best with the launch of the blog! The team here at Harneys offshorefundsblog are extremely proud to be your guiding light and inspiration, your blogging mentors, as you take your first stuttering baby steps towards true blogging greatness. Congratulations on being the first blog devoted to the world of offshore litigation (and, ahem, the second blog devoted to offshore legal matters).
In all seriousness, we are very excited that there will be a blog devoted to offshore litigation matters now. The offshorefundsblog bloggers worked very closely with our litigation colleagues during the GFC helping some of our investment funds clients deal with distressed situations, whether as a result of trading losses, illiquidity or other factors. Together, we were able to find solutions for those clients that I don’t think a funds lawyer or a litigation lawyer would have been able to come up with alone.
* I think I am almost as proud to be the first offshore lawyer to actually give a shout out on a blog. Keeping up with those hip young millennial bloggers for sure…