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.
Many of our readers will no doubt have heard about the recent decision by the European Commission that Apple’s tax structure in Ireland breached the EU state aid rules. But what, you may wonder, does that have to do with offshore funds? For me it raises an important question of principle of who should be deciding international tax policy for multi-national corporations and other companies – including investment funds – that operate on a cross-border basis in Europe.
As we’ve blogged about before, the OECD’s been busy working on its BEPS plan to try to make the international tax system more joined up – and limit some of the mismatches that multi-national and other companies have for years (completely legally) used to reduce their tax bills.
Here in Europe, the European Council’s also been working on introducing legislation building on BEPS and the Commission’s 2015 Action Plan for Fair and Efficient Corporate Taxation in the European Union, via the Anti Tax Avoidance Directive. So far, this all looks suitably co-ordinated and sounds sensible when you bear in mind the Commission’s website statement that “National governments are responsible for raising taxes and settling tax rates…The EC Treaty does not specifically call for direct taxes (income and corporate taxes) to be harmonised.”
So how then does the 30 August 2016 state aid decision by the Commission about Apple’s tax structure in Ireland fit into this?
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!
Once your fund is registered with the Cayman Islands Monetary Authority (CIMA) it will need to comply with various ongoing obligations under the Mutual Funds Law.
The list isn’t long but it’s important for regulated funds to comply to keep the fund in good standing with CIMA and avoid offences / penalties. Failing to comply with FATCA-related reporting obligations can also potentially result in a 30% withholding tax applying to the fund, which is clearly best avoided.
So, if your fund’s registered under section 4(3) of the Mutual Funds Law (see our earlier blog on the different kinds of funds), what are its ongoing obligations?
You’ve appointed your independent directors. They seem like good people, came highly recommended, have great resumes and seem interested and enthusiastic about your strategy. Now that you have them on board though, do you know what they should actually be doing?
Since the 2008 financial crisis, directors of investment funds have faced more and more scrutiny of their actions and decisions. Recent court cases have confirmed the rules on directors’ duties and in December 2013 the Cayman Islands Monetary Authority (CIMA) issued a statement of guidance on corporate governance (the Guidance) which it expects regulated funds to follow as a minimum. Although the BVI does not have an equivalent to the Guidance, the principles under BVI law are the same and a BVI fund director would be well advised to take direction from the Cayman Guidance.
So what should the directors of a regulated fund in Cayman or the BVI actually be doing?
One of the questions we receive regularly from our clients (existing and potential) is whether they can set up an LLC in Cayman. “Hi, my name is Jim and I’d like an LLC please”. This is a natural question for clients in North America as LLCs seem to be the preferred vehicle of choice for almost any purpose and so why should there be any other choice? For example, the vast majority of funds set up in the United States are LLCs, incorporated in Delaware, and every client is familiar with them and how they work.
We often find that the overlay of having the straight company concept in Cayman leads to some confusion. Cayman does not currently have the LLC concept and sticks to the regime of a company based on English Law. “We have them, why don’t you?” is what we typically hear. Traditionally, our long legacy as a British colony (you can imagine how a Scotsman writing this may grumble) has caused us to follow English Law (yes, Scottish Law is better, Donoghue –v– Stevenson, anyone, anyone…?).
However. It is not often that Cayman lawyers receive brand new playthings from the Cayman government, however this past Christmas, we had reason to break out the bubbly. Legislation was published for consultation which will introduce the concept of LLCs into Cayman Law. We’re not sure yet as to when the legislation will be passed and brought into force, so we will have a new plaything, we’re just not able to play with it… yet. We are though tooling up so that we can get going with this concept once it is actually released. Read more about this on our website.
So, what difference will it make?
There’s been increased focus from the courts and regulators on the duties owed by directors of a Cayman Islands or BVI fund since the financial crisis of 2007-8 and various high profile fund meltdowns. So what duties does a director of a fund actually owe?
In both the Cayman Islands and the BVI, directors’ duties are based on a mix of English common law, statute and regulatory guidance. A director of a corporate fund owes the same duties to the fund as a director of any other Cayman Islands or BVI company owes to its company. Under common law a director owes fiduciary duties and duties of skill, care and diligence.
Directors’ fiduciary duties are:
– to act in good faith in what the director considers is the best interests of the fund;
– to exercise powers for the purposes for which they were conferred and in the fund’s interests;
– to act with unfettered discretion; and
– to avoid conflicts of interest and to disclose personal interests in transactions.
If you are thinking of setting up an offshore hedge fund our new infographic which sets out the key steps is just for you.
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:
The BVI and Cayman are often referred to as “tax neutral” and you might have been told that, for this reason, it would be advantageous to establish your fund in either jurisdiction. What does this actually mean and what does it mean for your fund?
So you’ve got a great idea for your fund’s investment strategy, perhaps you have tested it and developed a track record and maybe you even have proposed seed financing, but who else needs to be involved in setting up and launching your fund? I have set out a list of the key players below.
Cayman and BVI funds are not restricted to using Cayman and BVI service providers. They have the flexibility to appoint service providers from all over the world, subject to some technicalities which are beyond the scope of this blog.
There are a number of ways to structure your offshore fund and the best option for you will depend largely on the location of the manager, your investor base and the type of investments that the fund will make. I have set out a summary of the three most common structures to use for offshore funds in this post.
Securities investment business in or from the Cayman Islands is regulated by the Securities Investment Business Law (Revised) (SIBL). SIBL sets out which securities investment business activities are regulated, and so need a license to do them, and also various exemptions from the licensing requirement.
So how does SIBL work? Continue reading
It is nearly three years since the BVI launched its Approved Manager Regime. The introduction of the Approved Manager Regime at the end of 2012 was the jurisdiction’s first step towards putting together a complete package focused on the smaller and emerging manager and it has been a great success.
My Cayman colleagues will probably jump up and down when I say this; but it is such a success that we now see Cayman funds being set up with BVI Approved Managers, given that the Approved Manager out-performs the Cayman equivalent, the Cayman Islands Securities and Investment Business Law (SIBL) Exempted Manager, both on cost (establishment and ongoing) and because it has the stamp of being a regulated product, which the Cayman equivalent does not. In addition, the Approved Manager offers greater flexibility, as a Cayman Exempted Manager is limited to only acting for funds whose investors fall within the definitions of a “sophisticated investor” or “high net worth person” under SIBL, whilst the Approved Manager has no such limitation.