^ other proximity and time zone issues, depending on the manager personnel location and strategy; ^ whether there are sufficient local accountancy firms and law firms (and, if a fund is to be administered or have its assets custodied locally, banks, local directors, custodians and administrators) to support the operation of the fund; ^ establishment costs, expenses and ongoing maintenance of the fund; ^ time to market, i.e., how long it will take to establish the fund; and ^ whether the jurisdiction chosen is politically stable, and the attitude and familiarity of authorities in the jurisdiction towards hedge funds. Key Fund Jurisdictions Cayman Islands. The Cayman Islands remains the jurisdiction of choice for most U.S. and UK-based managers. The Cayman Islands is very familiar to institutional and international investors and offers flexible yet well-developed accounting, legal and tax structures for funds backed up by a recognised legal system for resolving disputes. There are no restrictions on the strategies that may be implemented through a Cayman fund and no limits on the types of investors that may invest in such a fund (provided that the fund may not be marketed to the public in the Cayman Islands). A Cayman hedge fund can be established as a body corporate, limited partnership, unit trust or segregated portfolio company. Master-feeder fund structures can be established using all of these entities/structures with and without a Delaware feeder. These structures all benefit from tax exemptions. The Cayman Islands offers a significant collection of local and experienced hedge fund directors, as well as high-quality local service providers. It also permits Cayman funds to use administrators, custodians and other service providers based outside the Cayman Islands. Thus, many Cayman structures are serviced by administrators and custodians based in jurisdictions such as Ireland
and the U.S. and prime brokers based in the UK and the U.S. In addition, the Cayman Islands has been efficient at ensuring that it keeps up with important developments in the U.S. and Europe affecting alternative investment funds, including international tax-information exchange regimes (FATCA in the U.S. and CRS outside the U.S.) and regulatory developments in the EEA. The Cayman Islands also remains a relatively quick (and generally very cost-effective) jurisdiction in which to establish a hedge fund. Delaware. The hedge fund industry has its roots in Delaware. U.S. investors (from whom the vast majority of hedge fund allocations still come) are well familiar and comfortable investing through a Delaware established fund. Further, U.S. taxable investors requiring a tax-transparent vehicle in which to invest will typically prefer to invest in a Delaware feeder (normally in the form of a limited partnership or LLC). Delaware remains a quick (and cost-effective) jurisdiction to establish a fund, which can take advantage of relatively flexible structures. Europe. Generally, funds established outside the EEA may currently only be marketed into EEA countries (or the UK) in accordance with each jurisdiction’s own national private placement regime. Certain EEA jurisdictions do not permit private placement or impose requirements that make it costly or complex to undertake marketing on a private placement basis. In contrast, funds established in the EEA may be marketed into all EEA jurisdictions to professional investors using the AIFMD “passport.” 1 Broadly speaking, this allows an EEA fund to be marketed throughout the EEA by reference to a single set of rules with limited gold-plating on a jurisdiction-by- jurisdiction basis. Aside from the benefits of marketing a European hedge fund, many European investors may suffer regulatory or other consequences by investing in an “offshore” jurisdiction or may be concerned with the perception of investing in such. Ireland and Luxembourg are the most popular EEA jurisdictions for those seeking investment from European investors. Both jurisdictions offer a range of fund products, including corporate structures, partnership vehicles, funds established under contract (such as common
1 There are also passports available for non-professional investors that are based on special fund regimes available EEA wide such as the ELTIF, EuVECA and EuSEF.
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