We are delighted today, on International Women’s Day, to host a blog from Georgie Loxton. I first connected with Georgie when she commented on my blog about women in the funds industry on this day, last year. Little did I imagine back then that, one year on, Georgie would become a friend, a neighbour and a collaborator and that I would become an avid reader of her thoughtful and insightful blog. As a woman, an investment manager with 14 years’ experience managing other people’s money and as someone who is passionate about making investing more accessible to women, Georgie is extremely well positioned to talk about women and money. Enjoy.
It has been a real pleasure to spend a lot of time recently in New York, one of my favourite cities in the world. This is undoubtedly the best time of year to see it as well as the leaves start to change colour, the festive lights start to twinkle and it is impossible to resist getting the running trainers on and heading out for a plod around the majestic Central Park.
Until you get up there and realise that the entire city runs faster than you.
The first call to arms was a true honour; our global funds team had been shortlisted for the Offshore Law Firm of the Year in the very prestigious HFM Week Awards and so Oliver Bell and I trooped up to firstly buy something to wear (it was decided that “Hurricane Chic” was not the right look) and then secondly to attend the awards at the fantastic Cipriani on 42nd Street.
Harneys advises on first EU-approved, Iran-oriented alternative investment fund
It’s not every day that you get the chance to announce that you’ve set-up the first hedge fund, but, for the second time running (the first being the establishment of the first BVI hedge fund*), Harneys have done it, with the establishment of the very first Cypriot hedge fund, Turquoise Variable Capital Investment Fund Plc. But wait – this time, it’s a double first – as Turquoise is also the first EU-approved Iran-oriented alternative investment fund. Taa daaaaaa!
Lewis and I had the great pleasure of attending the annual Hedge Funds Care seasonal event in New York last month, which is a fantastic cause that we feel very strongly about here at Harneys. For any of you that are not aware of their work, here are some further details: http://hfc.org/
We met a wide variety of professionals within the industry and had a number of fascinating conversations, although unsurprisingly Donald Trump seemed to feature in an awful lot of them.
One person we met was Grant Greenberg, a Director at Lumentus who gave us some really interesting statistics and advice that we thought the readership here might appreciate, and so without further ado, here it is:
It's a tough job, but someone has to do it….
Harneys was recently offered a fantastic speaking and sponsorship opportunity by the organisers of the 2015 Alternative Asset Summit in Las Vegas. Although I was perfectly happy to spend my time huddled at a desk in the damp cold, climes of Vancouver, I was strong-armed by my partners into attending. It’s a rough life – last week I was forced to head to sunny Las Vegas, stay at the Wynn hotel and sip cocktails at the poolside cabanas with esteemed colleagues in the alternative assets industry.
Before you get the mistaken impression that these Las Vegas conferences are a complete boondoggle, let me assure everyone (especially my partners) that plenty of high level discussions took place. I was honoured to be invited to be a panellist at the Hedge Fund Boot Camp the day before the Summit started. I joined some leading industry experts on panels focused on all aspects of starting and building a successful hedge fund. Start-up funds are a core part of our funds formation practice and this was an excellent opportunity to assist a number of people interested in starting a fund.
I was also fortunate enough to be asked to host a small Q&A lunchtime session on starting up an offshore fund. It was a great chance to answer some of the more detailed offshore fund questions that people may not have felt comfortable asking at the Boot Camp.
Although there were plenty of fascinating panels at the Summit, one subject that particularly interested me was the increased focus, from both an external (regulator) perspective and an internal (industry) perspective, on cyber security. This reflects my personal experience as well – I am sure I am not alone in saying that I now receive requests from clients on a regular basis to confirm the security policies and procedures of our law firm. This focus on cyber security is being driven by investors in our clients’ funds as part of their due diligence process and by our clients themselves. We are also seeing hedge fund focussed cyber security start ups enter the space as well. This is very much a live issue heading into 2016.
I had an interesting conversation today. First some background. You may have noticed that, over the last week, world equity markets have undergone substantial amounts of selling that have driven share prices down to a degree where words like “fear” and “panic” and “market turmoil” seemed to be appearing in the press and media with alarming regularity – only to then rise strongly again over the last day or two.
Basically, everyone seems to be freaking out that the Chinese economy is going to implode and pull the rest of the global economy down with it, or maybe not.
But back to my interesting conversation. Somebody asked me what I thought all of the above would mean for the hedge fund industry. This got me to thinking about what a hedge fund actually is. See, I told you this was going to be interesting.
My thoughts on ESMA’s AIFMD announcement
As has been reported widely elsewhere, the European Securities and Markets Authority (ESMA) has recommended that the passport under the Alternative Investment Fund Managers Directive (AIFMD) should be extended to fund managers based in Switzerland (upon the adoption of certain pending legislation), Jersey and Guernsey.
The fact that the Cayman Islands and the British Virgin Islands were not included in this list has come as a shock to a number of commentators, but frankly we here at Harneys were anticipating this very approach being taken by ESMA for a wide variety of reasons.
I think it is very telling that as part of ESMA’s statement, they mentioned that the European Commission, Parliament and Council may wish to consider whether to wait until ESMA has delivered positive advice on a sufficient number of non-EU countries, before introducing the passport in order to avoid any adverse market impact that a decision to extend the passport to only a few non-EU countries might have.
In an interesting turn of events, the Financial Stability Board has recently announced a change of direction in its post-crisis regulatory approach by confirming that it will no longer single out the world’s biggest fund managers as having the potential to pose a systemic risk to the global financial system.
Whilst this doesn’t create the opportunity that smaller managers thought it might — there were those who were hoping to take advantage of a more level playing field caused by bigger managers being tied-up with additional red tape — it is certainly good news for the fund management industry as a whole, providing the industry with a little breathing space whilst global regulators go back to their respective drawing boards in their pursuit to mitigate the greatest dangers to global economic stability.
The wider question is whether or not the investment fund industry as a whole poses a systemic threat to the world economy: a question that has divided both academics and commentators alike. A chief concern is that the fund management industry might amplify market disturbances, in the event that investors attempt to withdraw their capital at the same time. In my opinion, such a run on accounts would be highly unlikely to occur again; I would expect the majority of sophisticated managers to have already amended their funds’ offering documents to allow them to implement gates and broad suspension rights at such times of stress. Of course, this is only one piece of the regulator’s puzzle, but it serves to highlight a potential disconnect between theoretical implications based on an outmoded understanding of the fund management industry and reality.
As always, we’d be delighted to hear your thoughts.
Why we are celebrating Cayman’s new “opt-in” regime for funds
For those of us sitting on the Western side of the Atlantic Ocean, Europe tends to seem quite far away, somewhat off in the distance and (depending on whether you have to connect through certain airports on the East Coast) sometimes difficult to access.
However, some of you may actually be interested in providing access to your Cayman products for investors based in the European Union. After the financial crisis in 2008, the EU decided to introduce the Alternative Investment Fund Managers Directive (AIFMD). As is typical of EU legislation, this is a very dry piece of drafting but the effect is that Cayman funds have to meet certain regulatory requirements before EU investors are able to gain access to them.
Lending to Funds — Subscription Finance Part II
Part one of this topic covered what subscription finance is, (loans to a fund secured on the undrawn capital commitments of its investors), and how it can benefit funds and their investors (increased liquidity, returns and simplicity). This final instalment covers (briefly) the mechanics of this type of financing.
How does it work?
The subscription finance facility would work the same way as a standard loan facility. As security for the subscription finance facility, the lender will be granted a power of attorney from the fund’s general partner (the GP) to step into its shoes and make the capital call to the investors, and/or an assignment of the right to make the capital call and to receive the proceeds of the capital calls. Finally, there will be a charge over the bank account into which the capital commitments are paid into.
I had the pleasure this morning of headlining (which makes me sound far more like a rock star than a funds lawyer which, just to be clear, is very far from the truth) at the BVI Investment Funds Association breakfast forum, speaking about the new BVI fund products. Whilst I think on occasions I may have expressed a little too much enthusiasm (probably due to the espresso immediately before taking the podium), there was a generally accepted acknowledgement in the room that these vehicles do allow the BVI to properly and actively market itself as the very genuine next best alternative to Cayman to house an offshore fund.
The questions I received from the floor were varied; one interesting discussion point was the KYC obligations of the fund and whose ultimate responsibility it would be to collect identification documents on the investors if the fund does not appoint an administrator. The consensus was that this is likely to fall upon the directors, adding weight and responsibility to the fiduciary duties they already owe to the fund.
Overall, there was a real sense of optimism and when coupled with the fact that the approved manager product is gathering more and more momentum (evidenced by the vast increase in licenses issued in Q1 2015), there is no doubt that the BVI is moving in the right direction.
Lending to Funds – an introduction to subscription finance
“Neither a borrower nor a lender be” wrote Shakespeare and in the aftermath of the credit crunch and the global slowdown, it seems that many banks are reacquainting themselves with the words of the Bard. And when they do lend, they are increasingly looking for more security, “safer” borrowers and higher fees.
On the face of it, a newly launched fund might not have the track record or the assets to persuade commercial lenders to lend monies to it. But these funds do have assets which they can make available to lenders – the uncalled capital commitments of their investors.
Lewis and I have just returned from networking around SALT, a premier thought leadership forum in the global investment management industry, held in Las Vegas. It was a fantastic opportunity to catch up with many of our contacts and also to make some great new connections. Even living in the BVI, it’s not often we get to spend our working day around a pool. Here’s a picture of the cabana village that we co-hosted with some other leading firms in the alternative investment funds industry. As you can see, the dress code ranged all the way from bikini to business suit. You’ll be pleased to know Lewis and I played it safe with office casual.
More seriously, we heard a number of people talking about Assistant US Attorney General John Carlin’s presentation on the danger of fund managers not preparing for cyber attacks. His remarks have also been reported by a number of mainstream press, including USA Today. With ever increasing third party costs and red tape, this is likely to be something that smaller managers can do without right now. However, given the potential damage to managers and their funds from such cyber-attacks, both financially and from a reputational standpoint, we believe that this is something that should be towards the top of every manager’s agenda.
One of the first things in my inbox this morning was an interesting new paper Financing the Economy: The role of alternative asset managers in the non-bank lending environment published today by AIMA, the Alternative Investment Management Association.
The paper looks at the use of financing from hedge funds in sectors such as social housing, health, renewable energy and shipbuilding, as well as the more traditional support the hedge fund industry provides small and medium-sized enterprises who badly need access to capital to grow but have found it increasingly difficult to obtain since the banking crisis.
Well done for tracking us down and thanks for checking us out.
We are a diverse group of funds lawyers that have come from far and wide and now happen to be all under the global roof of one of the leading offshore law firms, Harney Westwood & Riegels. This blog was born from wanting to try and address everyday questions we receive from our clients such as “Why do I need an offshore fund?”, “How do I go about setting one up?” and “Why are you lawyers so damn expensive?” (a common misconception).
Wanting to be good Samaritans (and hopefully remove the common misconception), Lewis Chong and I started looking around online and were surprised to see that there was not a lot of helpful information for people with these types of questions. So, after a couple of cold Heinekens one evening, we decided to create this blog.