Post-Weavering governance reforms have changed the face of fund oversight
The Cayman Islands Court of Appeal has recently found that the directors of the failed Weavering fund (Weavering Macro Fixed Income Fund Limited vs Stefan Peterson and Hans Ekstrom) could not be found liable for wilful default due to insufficient evidence placed before the judge in the original case. However, this is unlikely to affect the expectations of Cayman courts and regulators regarding the standards now established for Cayman fund boards.
Although it did not create any new law, the original Weavering case has prompted substantial improvements in the overall standard of Cayman Islands fund governance and allocators are now much more sensitive to ‘red flag’ exemption clauses in articles of association. Consequently, directors of fund boards will need to adhere to the best practice standards established by the case and reinforced by guidance issued by CIMA in its wake. Read More…
The ICAV is likely to become the structure of choice for Irish funds
The much anticipated Irish Collective Asset Management Vehicle (“ICAV”) legislation has now been passed into law by the Irish Parliament. The ICAV is a bespoke corporate vehicle for investment funds in Ireland. It is likely to become the vehicle of choice for those seeking to establish funds in the country.
While the variable capital company (“VCC”) will remain available to promoters setting up funds in Ireland, the ICAV has a number of features which set it apart from the plc. The legislation also makes it possible for existing VCCs to transition to the ICAV structure and provision is made for the redomiciliation of foreign investment funds into Irish ICAVs.
Key Features of the ICAV
Check the Box
One of the primary benefits of the ICAV is that it will ‘check the box’ for US tax purposes.
Currently an Irish fund structured as a plc is treated as a per se corporation for US tax purposes and therefore cannot “check the box” in order to be treated as a transparent entity for US tax purposes. This has resulted in both the fund and the investor being treated as taxable persons from the US tax perspective. The ICAV will be an eligible entity for the purposes of “checking the box”.
Streamlining of company law requirements
Investment funds structured as plcs are subject to a number of company law requirements which are viewed as inappropriate for investment funds and the ICAV will not be subject to these requirements. The main amendments include:
- Making the Central Bank of Ireland the competent authority for the incorporation of the ICAV
- Removal of the requirement to operate on the principle of risk spreading
- Removal of the requirement to have an annual general meeting
- No requirement to receive shareholder approval to amend the instrument of incorporation where the depositary is satisfied that such amendment is not prejudicial to shareholders and the amendment is not one which the Central Bank requires to be approved by shareholders
- Permitting annual financial statements to be prepared at individual sub-fund level
Plus ça change plus c’est le même chose
While the ICAV contains a number of benefits over the VCC regime many of the key governance structures which made VCCs so successful have been retained. The ICAV will have a board of directors who will be responsible for its governance, its shares may be listed on a stock exchange and it may be self-managed or appoint a management company.
From a prudential perspective it will be regulated in the same manner as a plc or unit trust under the UCITS Notices or AIFM Rulebook by the Central Bank. The Central Bank authorization process will remain largely the same.
The Central Bank has advised it will be in a position to shortly commence reviewing applications for authorization from ICAVs and it is likely that the first ICAVs will launch in a matter of weeks. We would expect that the transition provisions will be attractive for plcs who wish to receive investment from US investors with others waiting to see the lay of the land before deciding on whether to transition to the new regime. The redomiciliation regime is also likely to be attractive to promoters looking to consolidate their existing EU fund range or to redomicile into the EU.
How Carne can help
Carne is the leading supplier of governance services to Irish Funds. Carne will be able to offer the following services to ICAVs
Paul Harris joins Carne’s team of independent fund directors to provide governance support for alternative managers using Jersey, Guernsey and Cayman Islands.
Carne Group, the leading global provider of independent governance and oversight services for asset managers, has recruited Paul Harris, formerly a Director with Brevan Howard, to join Carne’s Channel Islands office. Paul will be available to serve as an independent fund director across various domiciles as well as providing valuable risk management and oversight support to Carne’s AIFMD-compliant management company or third party self-managed AIFs. Paul’s appointment complements Carne’s existing governance capabilities in the Channel Islands, covering private equity, real estate, infrastructure and hedge funds. Read More…
Martin Anderson and Neil Clifford join Carne’s highly regarded AIFMD team to support its management companies in Ireland, Luxembourg and the Channel Islands.
Carne Group, the leading provider of governance and oversight services for the global asset management industry, has announced two hires in its Irish office to support the increasing demand for its AIFMD management company services, including its independent ‘mancos’ in Ireland, Luxembourg and the Channel Islands and associated risk management.
Neil Clifford joins Carne from Irish Life Investment Managers where he was Head of Alternatives and oversaw an external hedge funds portfolio. He has also supervised ILIM’s illiquid investments in private equity and infrastructure, including acting as an independent director on a number of investee companies. Neil is a former equity fund manager and a qualified risk management professional.
Martin Anderson also joins Carne, having previously held senior management roles at RBC Investor Services including overseeing the bank’s sub-custody network and change programme. He has spent over 20 years in the funds industry, including 10 years at Northern Trust in Dublin where he held a number of roles, including Head of European Transfer Agency and Managing Director with the Irish fund administration business. Martin is a qualified Chartered Accountant and has also worked as an Audit Manager with KPMG in Bermuda. Read More…
Regulated non-EU AIFM enables distribution into the UK
CHANNEL ISLANDS, December 2014: Carne Group, a leading provider of governance and oversight services for the global asset management industry, has been chosen to provide support for the successfully listed River and Mercantile UK Micro Cap Investment Company Limited, which is domiciled in Guernsey. The Company will be admitted to the Premium Segment of the Official List of the UK Listing Authority and commence trading on the 2nd of December 2014 on the London Stock Exchange.
The Company is making use of Carne’s Channel Islands management company, which was authorised as an AIFM by the Jersey Financial Services Commission (JFSC) in October. The management company is a non-EU AIFM structure which can be used to distribute funds into the UK under the National Private Placement Regime.
The Company’s assets will be managed by River and Mercantile Asset Management LLP, which is authorised and regulated by the Financial Conduct Authority. River and Mercantile is a UK-based investment management firm specialising in managing UK and global equities for institutional and retail investors. Read More…
This is the fifth issue in the Carne Hedge Fund Governance Series and examines some of the critical operational functions that should be overseen by fund directors.
Following the Weavering Case and general calls for better corporate governance standards as a result of the financial crisis, the Cayman Islands Monetary Authority (‘CIMA’) published a Statement of Guidance (SOG) on 13 January 2014, setting out the minimum governance standards for directors of funds registered with CIMA.
The SOG sets out the key corporate governance principles for both the “Governing Body” and “Operator” of a Regulated Mutual Fund. The terms “Governing Body” and “Operator” are synonymous with the board of directors of a company, the general partner for a limited partnership or the trustees of a unit trust. The SOG is intended to be in line with international governance practices as well as codifying common law principles, including many of those set out in the Weavering case.
Fund governance best practice calls for hedge fund directors to take a proactive role in overseeing critical areas such as middle office functions, broker/bank account opening and closing, cash and security reconciliations, control over fund payments, cross trades management, oversight of delegates, side letter control and valuations and securities pricing. This briefing also includes a discussion of the operational policy documentation funds may be expected to have in place. Read More…