The Cayman Islands government kept funds lawyers busy over Christmas and into the New Year by publishing a draft of updated laws and regulations in December which affect Cayman Islands investment funds. This blog briefly summarises those changes, please let any of the blog team know if you’d like more information or advice on any of them or have a look at our more detailed client alerts in the links below.
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?
I am not just the black sheep of my family; I am the black sheep who stormed out of the farm, sought out the neighbourhood wolf pack and then asked if he might be able to join.
I come from a family of doctors, nurses and teachers who have spent their lives working exclusively in either the truly incredible and freely available British National Health Service or the state sponsored comprehensive school system, which provides a free education to anyone and everyone in the UK. All of these roles are incredibly noble and I remain very proud of the careers my family have chosen.
So it is safe to say that when I elected to go down the path to becoming a lawyer, there were a few furrowed brows. When I then mentioned I wanted to start by assisting major corporations with their legal affairs before moving onto the investment funds industry, frowns began to form. And when I finally announced that I was going to take this vocation into the offshore environment, the tears began to flow accordingly. The sheep in wolf’s clothing had arrived.
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?
After a highly educational trip down to Buenos Aires at the end of last year, I couldn’t help but be encapsulated by everything that was going on in Argentina. It absolutely felt like a country that was finally moving in the right direction and the Tax Amnesty was a large part of that. On that basis, I took the time out to interview the head of our Montevideo Office, Horacio Woycik to gauge his views on how 2017 is playing out:
Thanks for taking the time to speak to me Horacio. I noted that on 31 March 2017, Argentina concluded one of the world’s most successful tax amnesties, something of which you must be very proud of as a native Argentinian. Could you tell our blog readers a little more?
Thanks Phil. Although the Argentina Government was cautiously optimistic when announcing the Tax Amnesty on various assets[i] a year ago, the results exceeded all expectations, with $116.8 billion assets declared in total. This is impressive, particularly compared to the $1.7 billion declared under the former government’s Tax Amnesty programme between 2013-2015.
That’s a truly incredible result. What do you put it down to?
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.
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?
“We just spent the time staring at your arse in that tight cream dress, bending over the boardroom table” was the comment from a client that completely disarmed me as a newly qualified corporate lawyer. I was at a predominantly male completion dinner with some of my colleagues and a male management team, having just worked that “arse” off completing a massive management buy-out in record time, culminating in 72 hours working with no sleep.
Fortunately, during my career, explicitly sexist comments like this have been rare. But being in a room filled with men and finding it tough to break into the conversation or feeling like I am suffering from a language barrier (when everyone is actually speaking my native language) has been a common theme. I find it difficult to put my finger on what it is that I find challenging about these situations, particularly when I work well with my male colleagues and clients, and count many men as my close friends. On a social level, I hold my own with men and women alike. Kim Elsesser, business psychologist, calls this “the sex partition”. Forming new business and social relationships is easier with people who are similar to us and, generally, the same sex. “The communication is easier and more predictable, and it results in greater trust”. And, taking this further, breaking into groups of the opposite sex, particularly in a competitive, marketing environment, is even harder.
The Financial Times reported in November last year that, according to research examining over 26,000 funds across 56 countries, only one in five has a female portfolio manager, a figure which has not improved since the financial crisis and in 2015 women held only 10.3 percent of C-suite positions in the hedge fund industry. Research also shows that, despite the evidence that women-owned or women-managed hedge funds outperform the industry, women-run funds continue to find capital raising more difficult than their male peers. This has led to many asserting that women must work harder and perform better to achieve the same results.
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?”
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.
Adding to our success at The Lawyer and HFM Awards, Harneys was privileged to win twice at the inaugural Africa Global Funds Awards held recently in Cape Town. The Africa Global Funds Awards were created specifically to honour and generate both industry and public recognition for fund service providers focused on Africa and are the only international awards of their kind.
We were successful both in the Best Offshore Law Firm and Best Offshore Law Firm – Client Service categories, effectively giving us a clean sweep of the awards designated to offshore law firms against some well regarded and formidable competitors. Given that I head up our Africa Practice and for the last 5 years have had a strong focus on the funds industry in Africa, these wins saved me from some awkward internal conversations and allowed me to breathe a long sigh of relief.