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?
Last month I joined several of my Cayman colleagues in the bright lights of New York for the Funds Finance Association’s snappily named 6th Annual Global Funds Finance Symposium. And yes – we did remember to pack our thermals!
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!
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.