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.
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?
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
As many of you are aware, there is an increased regulatory and investor focus on cybersecurity in the funds space (just last week the Cayman regulator issued this circular). In this guest post, my friend Erik Kellogg discusses one of the key cybersecurity issues that start up and emerging managers should address.
If you’ve decided that a section 4(3) Cayman fund is the best structure for your fund (see our earlier blog for an Introduction to Cayman Fund Products), you’ll need to register it with the Cayman Islands Monetary Authority (CIMA) before you launch. The process is well established and fairly straightforward, involving your Cayman lawyers filing the following with CIMA via their online registration system.
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?
I wanted to write a post on the continuing obligations for BVI funds because if you are thinking of launching a fund in the BVI, knowing what your obligations will be is essential. My challenge was how to do it without boring you all to tears. I think I have managed to capture the obligations in five key headings so, hopefully, I can hold your attention for just long enough!