Forums  > General  > ICAV vs RAIF vs NAIF vs Cayman  
     
Page 1 of 1
Display using:  

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-10-31 12:12
As you probably know from other previous threads posted, I am about to launch a hedge fund with a US partner in early 2017.

The fund will be based in the US, and we will have a good AUM to start there, well above the typical startup fund launch.
Although starting out in the US, we want our fund to have global investors, and we are evaluating a presence in Europe (also because I am european and based in Europe at the moment).

There have been a number of new fund structures as of lately coming up, namely:
ICAV (Ireland)
RAIF (Luxembourg)
NAIF (Malta)

Some people think that these structures may challenge Cayman structures for collective schemes.

I wonder if any of you has any comment on the chances that any of these new structures could work better for capital raising in Europe, vs. a Cayman structure.

What I am interested is the weak spots, something that could lead to make any of these structures not usable in the future, if any of you have considered them and discarded for any reason.

The only thing that counts: can you make money?

HitmanH


Total Posts: 423
Joined: Apr 2005
 
Posted: 2016-10-31 12:34
ICAV has a lot of potential - however the cost of setting it up and running it (compared to a traditional Cayman (/BVI or Bermudan) product is very high.


rickyvic


Total Posts: 117
Joined: Jul 2013
 
Posted: 2016-11-17 12:57
In mainland Europe the real advantage is UCITS, other than that professional funds might be better recognisable by investors but still they do not make much of a difference.

In the states everyone goes for Cayman and a US feeder structure for US taxpayers, actually MS prime once recommended a friend of mine to go for Cayman anyway even for EU clients.

If you need to go for a professional EU fund I would go for Lux SIF, since it is seen as a better jurisdiction by the non-experts, again institutionals do not make a difference with this and look at the way it is structured, basically internal systems to prevent fraud.

The important thing is the management firm, having sound procedures internally and a good jurisdiction (US good).

Last but not least do not spend money if it is not necessary, it is just not worth it. Keep costs low and try to be profitable from day one (as a business) and find ways to minimise your work so you can focus on trading.

These recommendations come from past mistakes (mine and from others), I hope it helps you or any other in your situation.


"amicus Plato sed magis amica Veritas"

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-11-17 15:00
Guys thanks for the input.

So basically a Cayman fund would act as a sort of catch-all for global investors and american offshore entities (e.g. pension funds, reinsurers, etc.) and would remove the need to have also a european structure.

I thought Cayman funds were potentially in trouble with EU passports, but I guess I am uninformed or outdated?



The only thing that counts: can you make money?

HitmanH


Total Posts: 423
Joined: Apr 2005
 
Posted: 2016-11-17 15:56
Cayman funds are in trouble with EU passports - but most people just reverse inquiry around it.

WHOLLY agree with Ricky - "Keep costs low and try to be profitable from day one (as a business) and find ways to minimise your work so you can focus"

rickyvic


Total Posts: 117
Joined: Jul 2013
 
Posted: 2016-11-18 18:18
About Cayman, you better check with a good lawyer since I haven't done anything in this field since 2013, so I might be the one outdated.
The relevant EU directives are in the AIFMD that changes a lot so you need counsel, hard to find good counsel too.
In any case all you need to know about marketing is there.

About passport your only choice is reverse enquiry, easy, hitman is right.

"amicus Plato sed magis amica Veritas"

ComteZero


Total Posts: 523
Joined: Jun 2004
 
Posted: 2016-11-18 19:32
It all depends your final client; more specifically in Continental Europe, most big insurers won't ever look at Cayman funds. Most don't even look at AIFM, they're UCITS only. They will prefer 1) Lux 2) IRL (and depending their tastes local such as AMF, CONSOB... before Lux or not).
For individuals, depends if there's a packaging in life-insurance policy. If there is, RAIF is appealing, but still new and not stabilized yet AKAIK (some abuses have already been spotted).
Malta may look dodgy to many in Europe.
I'm surprised MS prime recommended Cayman, but again depends clients. Sophisticated individuals/PB wouldn't care much.

/* Trust is good, no trust is better. */

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-11-18 20:18
I am starting to think I just want to migrate to the US and forget Europe and all its ridiculous AIFMD red tapes...

The only thing that counts: can you make money?

HitmanH


Total Posts: 423
Joined: Apr 2005
 
Posted: 2016-11-21 11:22
RE: "I'm surprised MS prime recommended Cayman, but again depends clients. Sophisticated individuals/PB wouldn't care much"

I'm not at all. Vast majority of HF investors in the world are still US; and US investors are comfortable with Cayman; or Cayman with US feeder - so makes perfect sense...

ronin


Total Posts: 201
Joined: May 2006
 
Posted: 2016-11-21 11:58
@TSWP,

If you already have AUM in the US, go with US/Cayman to start with. You can always change the structure later, or set up a separate structure for Europe.

Raising money in Europe isn't easy. It's not something you do by the way. As in, "by the way, let's raise a couple of yard in Europe" - it just doesn't work like that.

"People say nothing's impossible, but I do nothing every day" --Winnie The Pooh

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-11-21 12:37
Thanks Ronin, appreciate the input. The direction seems very clear: US/Cayman.

And LOL re: let's raise a couple of yard in Europe...

Thank you all guys, it's been very helpful to discuss with you, now we're going to the lawyers.

The only thing that counts: can you make money?

Patrik
Founding Member

Total Posts: 1333
Joined: Mar 2004
 
Posted: 2016-11-21 13:38
I seem to recall you're in Switzerland - one thing to take into account about the US migration point: FINMA seems to have started to interpreting rules less favourably lately, e.g. managed accounts tend to get counted towards your 100mm of collective investment scheme total. On the margin favours packing your bags :)

Capital Structure Demolition LLC Radiation

rickyvic


Total Posts: 117
Joined: Jul 2013
 
Posted: 2016-11-23 11:29
RE: "I'm surprised MS prime recommended Cayman, but again depends clients. Sophisticated individuals/PB wouldn't care much"

i was surprised too, EU professional clients, it seems they asked each one of the MS clients active in this field and decided that a EU based professional fund or Cayman fund was the same.

"amicus Plato sed magis amica Veritas"

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-11-23 12:12
Patrik, you're right, I am planning to leave Switzerland completely, I don't see any point in keeping a Swiss company while running a US/Cayman fund given the current increasingly more difficult (and expensive) environment.

I will certainly relocate to the US once the fund accelerates (we have already lined up a large AUM injection that will come in 2018).


The only thing that counts: can you make money?

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-12-08 11:16
In the light of further investigation into possible structures, we are finalizing into one of those two:

1) US investment manager + cayman offshore feeder + us onshore feeder (typical master feeder or mini master solution)
OR
2) cayman investment manager + cayman offshore feeder + us onshore feeder (I have no name for this, in theory is a cayman master feeder with US onshore)

Now, solution 2) in theory is not so usual, I mean: for reasons that I do not understand entirely, it seems most fund managers are actually locating the investment manager company (general partner, if you want to call it like that) in the actual main domicile of the fund they run, say the US or London, for example.

In this sense, fund managers do not seem to do what corporate companies like Apple, Google, etc. are doing with Ireland, i.e. use a loop to stash the company's pre-tax profit offshore (albeit in reality often they reinvest in the US via treasuries, but still...).

I wonder if any of you has any explanation for this behavior:

is it just that fund managers do not like to set up their office offshore? (perfectly understandable assuming they are americans and have family, kids, friends, etc., most likely they will set up shop where they live in the US, plus americans have no tax advantages setting up offshore as they will be taxed anyway, but how about european managers? they could set up offshore and avoid most of their taxes if they wanted...).

or are there some real obstacles for a offshore manager, say a caymanian company, to direct a US onshore fund? I am not talking just about regulations, but maybe investors could perceive as fishy or dodgy a US fund that is directed by a offshore-based company and refuse to invest?

any thoughts, link, suggestion, reference, personal experience, opinion, etc. you may have on this topic would be greatly appreciated, to avoid doing mistakes, as we are finalizing our structure with the lawyers and planning to launch in February 2017.

The only thing that counts: can you make money?

NeroTulip


Total Posts: 996
Joined: May 2004
 
Posted: 2016-12-08 11:42
Solution 2 is only legal if you and your team are physically in Cayman. If you operate from NY/London/Geneva/HK/Singapore/whatever with this setup, this is called "running an unlicensed fund manager" and will get you in trouble with regulators. And I am not even sure you would be allowed to market this in the US. Not even talking about Europe, that's another can of worms.

Most people do not want to live in Cayman, but rather where their clients, brokers, contacts and families are. Some investors are also reassured by the fact that a US investment manager is regulated more tightly than a Cayman manager. So most people end up with an onshore manager, and have to bear the expense of being regulated.

"Earth: some bacteria and basic life forms, no sign of intelligent life" (Message from a type III civilization probe sent to the solar system circa 2016)

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-12-08 11:52
Thanks Nero, what you said helps a lot to clarify my doubts.

In particular in regard to this:
>Solution 2 is only legal if you and your team are physically in Cayman.

We are in fact considering the possibility of being physically set up in Cayman, and then have a secondary office/branch in the US.

The only thing that counts: can you make money?

Patrik
Founding Member

Total Posts: 1333
Joined: Mar 2004
 
Posted: 2016-12-08 12:37
One thing you can do is have a Cayman management company and a sub-manager in the country you're physically in. For some jurisdictions that can be tax efficient. E.g. if you stayed in Switzerland, made various management functions happen in Cayman (non-trading related, i.e. all admin), then the Swiss would agree that not all income should be recognized for Swiss taxes. What level of the group income that they think should be recognized for Swiss taxes is not fixed, it's more a negotiation.

I doubt that has any benefit if the other jurisdiction is the US though, but I'm not a lawyer and have no experience.

Capital Structure Demolition LLC Radiation

TSWP


Total Posts: 363
Joined: May 2012
 
Posted: 2016-12-08 12:46
Hmm, ok, I understand this setup, it's not a bad idea, although I wonder what happens if Switzerland and Cayman and US starts to disagree on rules in the future, in a world of changing regulations where the EU breaks balls to everybody in their orbit, it makes me worried.

Also, the EU/Swiss trading timezone, for US markets (our focus), I have been doing it for many years but frankly when the trading day ends at 5PM in the US timezone it is less tiring than when it ends at 11PM here. Just a side consideration, but in the long-term it does makes a huge difference for your work-life balance.




The only thing that counts: can you make money?

Patrik
Founding Member

Total Posts: 1333
Joined: Mar 2004
 
Posted: 2016-12-08 13:31
Future view on different jurisdictions is definitely a consideration. However, countries don't need to disagree here though, they operate independently without any consensus. If Switzerland wants to start saying it's gonna tax you on a worldwide group basis because it doesn't see materiality of Cayman operations, then they can just do it. The parts doesn't have to sum to 100%. Jurisdiction A can see the split as 60/40 between A and B, and B can see it as 20/80 between A and B. Modulo tax agreements signed between A and B.

Capital Structure Demolition LLC Radiation

chiral3
Founding Member

Total Posts: 4985
Joined: Mar 2004
 
Posted: 2016-12-08 13:40
I did something similar to Patrick's 2nd to last post (management function in the islands with a tax angle). It needed to move because of some regulatory issues. (The main issue was the lack of specific thinking on certain matters with the local monetary authority.) It was not that hard to do as compared to the initial set-up.

Nonius is Satoshi Nakamoto. 物の哀れ
Previous Thread :: Next Thread 
Page 1 of 1