1 simon schilder ogier september 2009 role, regulation and structuring of offshore funds in the...

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Simon Schilder

Ogier

September 2009

Role, Regulation and Structuring of Offshore Funds in the Current Market Environment

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Background

Offshore jurisdictions currently subject to increased scrutiny

Why use offshore funds?

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Role of Offshore Funds

Tax neutrality

Appropriate level of Regulation

Expertise and sophistication of service providers

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Regulation

Changing regulatory landscapeAlternative Investment Fund Manager DirectiveUS Hedge Funds Transparency Act Organisation for Economic Co-operation and Development

(OECD) – Tax Information Exchange AgreementsSecurities and Investment Business Act (SIBA)

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Structuring

Use of Liquidity control mechanics within fund documentsGates In-kind redemptions

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Structuring cont…

Suggested draft changes for in-kind redemption provisions

“Payment of the Redemption Price to a shareholder on redemption will be made in cash or, in the discretion of the directors (following consultation with the Investment Manager), in securities (which may include short positions, as well as long positions) selected by the directors (following consultation with the Investment Manager), or partly in cash or partly in securities (which may include short positions, as well as long positions) selected by the directors (following consultation with the Investment Manager). In-kind distributions may be made directly to the redeeming shareholder, or alternatively:(a) may comprise interest in special purpose vehicles established by the Fund for the purpose of liquidating the securities which are being transferred (either outright or by a participation interest) by the fund; or(b) may be distributed into a liquidating trust or account and sold for the benefit of such redeeming shareholder,in either such case (i) payment to such shareholder of that portion of its redemption attributable to such securities will be delayed until such time as such securities can be liquidated and (ii) the amount otherwise due such shareholder shall be increased or decreased to reflect the performance of such securities through the date on which the liquidation of such securities is effected, and any applicable fees and expenses.”

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Structuring cont…

Use of side pocketsSuspension of redemptions/suspension of redemption

payments

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Structuring cont…

Lessons learnt from decision in Strategic Turnaround Fund Partnership LimitedCayman court considered redemption process Decision creates a number of anomalies which should be

corrected in drafting of fund documents going forward

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Structuring cont…

Suggested draft change for redemption provisions following decision in Strategic Turnaround Fund Partnership Limited

“Upon the Redemption Day on which a share is redeemed, the holder shall cease to be a Member in respect of such share and shall not be entitled to any rights in respect thereof (and accordingly his name shall be forthwith removed from the Register with respect thereto and the share shall be cancelled and available for immediate reissue. Notwithstanding the preceding sentence a person whose share or shares have been redeemed, shall, in respect of such share or shares:(i) have the right to receive as a creditor (1) the Redemption Price… and (2) any dividend which had been declared in respect thereof before such Redemption Day; and(ii) continue to be bound by the provisions of these Articles regulating the payment of the Redemption Price including the right of suspension of such payment hereunder.”

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Structuring cont…

Flexibility of suspension provisions Retain ability to continue to calculate NAV whilst

maintaining a suspension of redemptions

Increased Investor Transparency Valuation committeesIndependent board of directors

Managed accounts

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The Future?

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Our Global reach

Over 800 staff including 39 partners, 180+ lawyers and 300 professional administrators across nine jurisdictions

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Simon Schilder

simon.schilder@ogier.com