In 2011, ahead of the introduction of the AIFMD in
Europe, an article entitled "A foot in both camps", was
Derek Delaney, Managing Director of DMS Offshore
Investment Services (Europe) Limited. In it, Delaney (pictured)
wrote: "There is an enduring perception that the established
European domiciles such as Ireland and Luxembourg are in direct
competition with the leading offshore domiciles such as Cayman.
This perception has transcended reality to the extent that leading
participants in both camps deem it necessary to fight their
With over 225 staff, DMS is the world's largest provider of
fund governance services and has long been at the vanguard of
establishing robust governance controls for hedge funds.
What Delaney's article sought to do was highlight the fact
that investment managers, depending on their size, the location and
type of their investors, and other factors, need to look at both
offshore and onshore domiciles and weigh up the best approach to
structuring their fund(s).
Whereas a few years ago Cayman would have been the default
choice, that's no longer the case. European domiciles are an
important consideration, and with its heritage and location both in
Cayman and Europe, DMS is well placed to support managers as they
look to adjust to regulation.
"Ultimately, there's no right or wrong approach. If we
were talking to a US manager we would be saying, 'Here's
the default option, Cayman, and this is the cost. If you're
looking to establish a European fund it will be more expensive
because of the need to appoint an independent depositary and the
addition of a management company'," says Delaney.
"If someone says that their investors are exclusively US
then they would choose Cayman and avoid the costs of a European
vehicle. If someone has a high concentration of investors domiciled
in, say, the UK it makes more sense to set up a Cayman fund and
distribute that fund under National Private Placement Rules. That
restricts the manager to marketing the fund to institutional-level
investors, which might be an issue if they want to target
The third scenario is if the manager has a high number of
European investors. If 25 per cent or more of the fund's
investors originate from Europe, they should opt to establish a
European regulated fund.
"When setting up the European fund the manager will quite
often have a Cayman feeder fund coming in to that structure.
However, the Cayman feeder would have to be in the European
domicile under EU regulations," explains Delaney.
The fourth scenario is where the manager expects to have a
predominantly European investor base. Here, it would make sense to
have a single European regulated fund with no Cayman element at
"In three of those four instances, Cayman plays a role. I
think it will still be the default jurisdiction for US managers who
at a minimum will have a Cayman feeder fund in their structure but
from a European perspective, the extent to which Cayman is used may
reduce somewhat going forward," opines Delaney.
It is logical that a manager would prefer Cayman, given the
lower costs but what is coming increasingly into play is necessity
according to Delaney, who concludes: "Where a mandate is
domicile-dependent then the manager will swallow those additional
costs and that additional oversight because ultimately that
discomfort will pale into comparison with the inability to raise
On the 9 September 2016 the MFSA issued feedback to its consultation of the 1 April 2016 in relation to intra-group loans.
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