New regulations targeting the offshore industry will likely shake up the way funds are managed.
That was the message the 2nd Annual Ogier Global Investment Funds seminar series had for over 300 hedge fund professionals in Boston, Cayman, Chicago, San Francisco and New York. An offshore legal and fiduciary services firm, Ogier has a presence in eleven jurisdictions around the world.
The Evolution of Offshore Investment Funds series was led by Ogier partners Peter Cockhill, James Bergstrom, Colin MacKay and Simon Schilder and delivered this spring. An accompanying magazine has been written and produced as a follow up piece.
Themed around the 150th anniversary of Darwin’s Origin of Species, the seminars looked at the past, present and future of offshore investment funds, including proposed structuring and language clarifications, the current litigious climate, and the various international regulatory initiatives at play.
One of the main points the speakers raised was that a likely consequence of the plethora of tax regulatory initiatives currently being developed by the G-20, the Organization for Economic Cooperation and Development, the US, EU and UK, will be that investment managers will need to establish additional management and administration operations in the jurisdictions of their investors and/or move offshore.
‘Hedge fund managers naturally seek international as well as national investors. To continue to do so in today’s evolving regulatory environment, managers are likely to need to establish operations in the EU for EU domiciled investors, in the US for US investors and offshore for international investors,’ said Mr. Cockhill.
Citing the various reports and legislative proposals put forward by governments and global regulatory bodies and tracing these proposals back to their origins, the Ogier seminars drew several conclusions as to potential results.
‘Transparency is the new paradigm,’ said Mr. Bergstrom. ‘In the near future only those offshore financial centres which meet the regulatory and tax transparency requirements of the new Financial Stability Board will be permitted to participate in the international financial system.’
The seminars traced the origins of the current international initiatives back to 1996 when the OECD’s harmful tax practices project was launched. By analyzing the development of the different initiatives since then it is possible to discern the key criteria that will need to be met by offshore centres and the offshore funds domiciled within them.
‘The underlying purpose for using an offshore fund remains as convincing as ever, but the number of OFCs in which they can be domiciled is likely to decrease,’ said Mr. Schilder.
‘The changes in the regulatory landscape will mean that only those OFCs that adapt to meet the new internationally mandated criteria on regulation and tax transparency will survive as structuring and administration centres for offshore funds,’ he said.
‘The costs of establishing the necessary regulator-to-regulator reporting and the ongoing scrutiny by international bodies are likely to be prohibitive for many offshore centres, but the status of the pre-eminent ones such as Cayman, BVI and the Channel Islands, should be enhanced by the coalescence of international standards.’
In addition to the analysis of the wider landscape in which hedge funds and offshore centres are operating, the presentation team took an in-depth look at structuring and drafting changes in light of recent important court decisions in various offshore jurisdictions.
Cayman partner Colin MacKay led the discussion on issues surrounding possible restatements of NAVs and clawbacks and related drafting and structuring issues used in payments-in-kind provisions and contractual definitions of gross negligence for directors. Studies of recent cases in BVI, Bermuda and Cayman formed the basis of Ogier opinions on the issue of liquidators requesting NAV restatements for the purposes of clawbacks and the overall effect of fraud on investors and service providers.
Ogier has planned additional summer and autumn dates for the seminar series in Brazil, London and Hong Kong. Ogier’s Global Investment Funds team has collected many industry accolades for leadership in this field, most recently as HFM Week’s 2009 Offshore Law Firm of the Year.