Leading Offshore Firm: The Inside View on the Cayman Islands Jurisdiction

Editor: Please describe the current environment for Cayman Islands investment fund structures.

Isbister: The current environment for Cayman Islands investment fund structures is the best it has been since the end of the global financial crisis. We are seeing a number of new quality start-up hedge fund managers establishing new products, and institutional clients have been busy on the fund formation side as well. The most popular hedge fund structure has been the master-feeder structure, which has a Delaware domiciled feeder fund and a Cayman offshore feeder fund both investing into a Cayman master fund. We are also assisting clients with a number of mini-master structures and some stand-alone funds. On the private equity side, the Cayman exempted limited partnership continues to be the preferred vehicle of choice for U.S. managers looking to establish offshore private equity funds. This preference was enhanced due to the recent amendments to the Exempted Limited Partnership Law, 2014 which is now similar in many respects to the Delaware partnership model.

Editor: What benefits can multinationals enjoy in using Cayman offshore structures? What is your role?

Burch: Cayman is a sophisticated, regulated jurisdiction that complies with international standards, sometimes exceeding them, as with our anti-money-laundering regime. At the forefront with respect to FATCA, Cayman has signed the Model 1 Intergovernmental Agreement (IGA) and introduced its own legislation. Clients also appreciate dealing with a tax and exchange control-neutral jurisdiction, well placed within the U.S. time zone. Cayman companies offer flexibility, including no required minimum capitalization and the ability to pay dividends from company profits or from share premium, and there is no requirement for Cayman-resident directors. Cayman offers a number of well-established structures for capital raising through bond issuances and secured lending as well as a strong finance pedigree familiar to sophisticated investors.

Our role is as the facilitator of a smooth process. Onshore and in-house counsel face serious pressure in negotiating high-level transactions and we need to provide accurate commercial solutions with unparalleled responsiveness to ensure expectations are met and hopefully exceeded. We recruit from top “magic circle” firms to ensure our lawyers have a high level of technical expertise, which is required and valued by our clients. Busy corporate counsel want ready access to information on their Cayman companies and, as needed, the ability to speak with their counsel at all times; therefore, our firm provides 24-hour coverage from multiple offices around the world plus an innovative online portal that provides clients with secure, real-time access to their corporate information. We aim to tailor solutions to the needs of our clients, and they know we can be relied upon to deliver what we promise.

Editor: Let’s talk more about regulation.

Dawson: In an ever more regulated environment globally, Cayman strives to be at the forefront of tax and regulatory compliance while maintaining its business utility. Ensuring FATCA compliance by Cayman entities is an obvious challenge. However, the Cayman government and service providers are working hard to respond to FATCA requirements and to put in place effective and responsive systems and legislation.

On a deal-by-deal basis, the regulatory analysis depends on the type of offshore business that is sought to be undertaken, be it establishing investment funds, financing arrangements, or structuring global M&A deals. In Cayman, every regulated activity has its own primary legislation, and care needs to be taken to ensure that putting in place a particular structure in accordance with one law does not lead to inadvertent breach of another. For example, a group might establish a Cayman entity to act as general partner to a partnership, and then for efficiencies later use the same entity as an investment management vehicle, thereby unknowingly bringing it within the remit of Cayman securities laws and possible licensing or registration requirements for the vehicle and its directors. Our regulatory team was created with these issues in mind and works closely with our clients on their transactions to ensure regulatory compliance whilst delivering the commercial, practical solutions sought.

Editor: Mourant Ozannes is widely recognized as a leading offshore firm. What’s your top-line outlook for 2015?

Isbister: In wrapping up, I will refer to the infographic provided here, which gives a good overview of our firm’s reach, capabilities and reputation, including many industry accolades. We are optimistic about the year ahead as we expect the positive investment funds and corporate transactional workflow to continue. To deal with this added workflow, we have hired more attorneys, and further team expansion is planned for us in Cayman.

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