Category Archives: Funds 101

If you are new to offshore investment funds, this is where to start

The BVI’s AEOI portal is now open for CRS filings. Are you ready?

The BVI International Tax Authority (ITA) announced yesterday that the BVI’s AEOI portal, BVI FARS, is now open for reporting under the OECD’s Common Reporting Standard (known as CRS)[1]. So, what do you have to do and by when?

The ITA has published an updated user guide but, since I know that most people are already glossing over and thinking about clicking on the more interesting email about drinks plans this evening which just flashed up in the right hand corner of their screens, I will try to summarise it as briefly as possible.

We are celebrating a small triumph in the BVI by beating our Cayman friends and rivals this year (in what has to be one of the world’s most boring races) to being ready to receive FATCA[2] filings. BVI funds have been diligently registering on BVI FARS and filing their FATCA reports, which were due by 31 May 2017. If you have missed the deadline, try not to panic and get in touch.

Despite a small delay (okay, I admit, Cayman beat us on this one) BVI FARS is now ready for CRS registration and so it’s now time to take the additional step of extending your registration on BVI FARS to cover reporting and filing under CRS. You can do this by logging into the BVI FARS portal as usual and changing the reporting obligations to include CRS. Actually, this really is pretty last minute and you only have until 30 June to register, yes that’s next Friday!

CRS filings have to be made on BVI FARS by 31 July 2017. A separate filing has to be submitted for each reportable jurisdiction in which the fund has reportable accounts. As with the FATCA process, you can either submit CRS filings using the manual entry using the online web form or by uploading an XML file that complies with the CRS XML Schema v.1.0, published by the OECD.

Any reports required to be made under UKCDOT[3] (the parallel reporting system for UK accounts which came in before CRS and will fall away in 2018) must also be made this year by submitting a CRS filing with the UK as the receiving country. Some accounts which are not yet required to be reported under CRS because they are pre-existing lower value individual accounts[4] and pre-existing entity accounts[5] will need to be reported under UKCDOT because the deadlines for reviewing those accounts under UKCDOT have now passed. The maximum required to be reported under the two regimes should be reported.

Don’t be caught out by the obligation under CRS which also requires investment managers and advisers, licensed in the BVI, to register on BVI FARS. Under FATCA, they weren’t required to do this because they were classified as Non-reporting FFIs.

So what are the key dates in 2017 for BVI funds and AEOI?

30 April 2017 All BVI Reporting Financial Institutions (including all BVI funds) were required to have registered with BVI FARS for FATCA.
31 May 2017 All BVI Reporting Financial Institutions should have made their FATCA reports. We recommend filing a nil return, even if you have no US Reportable Accounts.
30 June 2017 All BVI Reporting Financial Institutions (including funds and investment managers and advisers) must register on BVI FARS for CRS.
31 July 2017 All BVI Reporting Financial Institutions must file a report or a nil return on BVI FARS for CRS.
31 December 2017 All pre-existing lower value individual accounts and pre-existing entity accounts must have been reviewed for CRS.

 What else should BVI funds have done or be doing?

Most funds and their managers have been preparing for AEOI compliance and have been taking steps to ensure that they are complying with their notification, reporting and ongoing requirements but if you are still in the dark you should be:

  • Reviewing the fund’s existing documentation to make sure AEOI obligations are properly disclosed and the fund can get all the self-certification and other documents it needs.
  • Creating and implementing AEOI policies.
  • Reviewing pre-existing accounts. Financial Institutions have been given until 31 December 2017 to review pre-existing entity accounts and pre-existing lower value individual accounts. The review of all pre-existing accounts must have been completed by 31 December 2017 and all reportable accounts must be reported in 2018.
  • Appointing an authorised person as a principal point of contact to liaise with the ITA.

If you need more information or assistance with your filings, or want to discuss any of this in person, just contact one of our blog team and we will be happy to help.

Fiona has also been blogging on what is happening with AEOI in Cayman and you can read her blog here.

 

 

[1] OECD sponsored Multilateral Competent Authority Agreement and certain bilateral agreements or tax treaties regarding the common reporting standard on automatic exchange of information.

[2] US Foreign Account Tax Compliance Act

[3]  The Crown Dependencies and Overseas Territories International Tax Compliance Regulations

[4] Those with a value of less than US$1m.

[5] Pre-existing Entity Accounts with a value of less than US$250,000 do not need to be reviewed unless and until the balance exceeds US$250,000.

Marketing tips for fund managers

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

Cayman AEOI portal re-opens – get your filings ready…

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[1] and the OECD’s Common Reporting Standard (or CRS[2] 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?

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The Education of a Value Investor

We’re told a lot these days about why capitalism has failed us. We’re told that greedy bankers and irresponsible CEOs need to be reined in with more stringent regulations and that wealth should be more aggressively redistributed. Perhaps. But greed can also be a vehicle to something deeper and more soulful.

You would have every right in the current international political and social climate to read these words, written by a very successful investment fund manager and struggle to take them in. I know I did. I almost felt as if the author was setting up an enormous challenge for himself to beat the general stigmas that surround fund managers and certainly I prepared myself to get to the end of his book and conclude that he’d failed.

But how wrong I was.

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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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What is the process of setting up a US Fund and Cayman Fund like? How quick/seamless is it?

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.

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Why-set-up-a-fund-in-the-US.

Why set up an Offshore Fund at the same time as setting up a US Fund?

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.

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A Cayman perspective: 2017 trends for the funds industry

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.

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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

The Age of Uncertainty (a time of opportunity?)

During a recent visit to our London office, I had the privilege of attending AIMA’s Spotlight and Cocktail reception in London, the highlight of which for me was a keynote speech by Robert Peston. For those of you who were not in the UK in 2008 and 2009, Robert was one of the most prevalent economic commentators at the time (and, personally, a bit of a hero of mine).

The theme of Robert’s presentation was uncertainty and the question he asked us all to consider was whether, if 2007 was the age of absolute certainty (albeit, certainty that we were all about to suffer a painful and prolonged recessionary period), 2016 is the age of absolute uncertainty, politically and economically?

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Cayman LLCs – up and running

Idea Bulb Concept Drawing on Blackboard

They’ve been talked about for a while by our bloggers and contributors but the moment has now come for the Cayman LLC, which has been available for registration since 13 July and numerous of which have already been formed. The Cayman LLC was introduced to meet the requirements of North American managers and intermediaries who use Delaware LLCs and want a flexible offshore version, and Cayman lawyers dealing regularly with North American clients are particularly excited about now being able to offer a “Cayman” version. Its introduction also highlights Cayman’s responsiveness to market demand as it continues to maintain its position as the dominant brand in North America for funds structures.

So what makes the Cayman LLC – or limited liability company, to give it its full name – so interesting?

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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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Preparing for the demands of institutional investment in an era of transparency

As an emerging manager who has set up a BVI incubator fund with the backing of friends and family, the two to three-year incubation period is time to prove your credentials and build a solid track record with the ultimate aim of attracting sophisticated and institutional investors. However, there is so much more to do during that period than prove that your investment strategy stands up to scrutiny.

In an age of increasing transparency, it is vital that you use the incubation period to start preparing for a time when you will need to meet institutional-style demands in terms of your operations. It is still early days – and you may still fall below AUM thresholds for complying with extraterritorial regulation – but there is a level of infrastructure and reporting that sophisticated and institutional investors will expect before they are going to invest. Continue reading

We won!

It was a packed room at The Lawyer Awards last week – all 1250 of us anxiously hoping our firm would be crowned winner – and with few categories so fiercely contested as Offshore Law Firm of the Year, we were definitely on the edge of our seat.

The Lawyer kept us entertained while we waited, though. With hours of comedy from Dara Ó Briain, a rocking band and a beautiful River Thames fireworks display, it was a glittering celebration of a year of hard work and success across the legal industry – and judging from the crowd still packed on the dancefloor at 2am, a night that many didn’t want to end.

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