Australian fund managers are actively seeking to launch Cayman versions of their funds, according to a lawyer, as they seek to maximise assets from overseas investors.
These Cayman vehicles, structured as limited liability companies, are a common and tax-efficient way for offshore investors to access a fund irrespective of their jurisdiction. The familiarity of the Cayman structure is an attractive option for international investors who may be unable to access Australian unit trusts.
The LLC structure is set up as a company, making it more similar to a corporate collective investment vehicle (CCIV) than a unit trust.
Speaking to Money Management, Barbara Vrettos, senior associate at Cowell Clarke, said she has noticed a “fair bit of uptick” in funds seeking these options. They are particularly popular for equity strategies which are liquid and cheaper than maintaining a fund in Australia.
“We are seeing a fair bit of uptick in that area. We’ve seen fund managers here, where they’ve got a few funds which are going well. There’s a solid formula, and now they want to get additional capital from sophisticated wholesale investors. But those investors don’t want an Australian unit trust so they set up a fund doing the same thing but in a Cayman form,” she said.
“It’s attractive if you can get a good chunk of money from overseas for a fund you are already managing, and the administration costs are lower. It’s a game changer.”
Later this month, Regal Partners will launch its latest Cayman vehicle, having already launched Cayman versions of the Regal Partners Private Fund, Regal Resources Long Short Fund, Regal Tasman Market Neutral and the Regal Atlantic Absolute Return Fund.
Rebecca Fesq, head of client business and strategic partnerships at Regal Partners, told Money Management that the firm launched its first Cayman vehicle in 2005 and also has investment vehicles in Singapore and Delaware, US.
“The set up, infrastructure, initial and ongoing costs of Cayman vehicles, including the resourcing required to raise capital, may be prohibitive for new managers; however, if an investment manager is seeking to raise capital offshore, then an Australian unit trust will typically be unsuitable.
“We anticipate there will be further offshore vehicles launched as global investors continue to seek access to a range of alternative investment strategies managed across the group.”
Meanwhile, L1 Capital has a Cayman version of its Long Short Fund for overseas investors, and the firm told Money Management that it would “consider launching more in this format if it identified appropriate client demand”.
Commenting further on the technicalities of setting up an offshore Cayman vehicle, Vrettos said the hardest part was working with offshore service providers. She said there is also a preference for a firm to have a local director who is familiar with the Cayman regulatory landscape and be a conduit with these local service providers.
Governance considerations of an LLC also mean directors must sit on the board of the company who must be different from its investment managers to maintain independence.
“Overseas service providers are a pain point as getting all the information we need can be difficult with the time difference and ensuring they are sticking to the timeline is essential.”
Asked how long it can take to set up a fund, Vrettos said this can “be as long as a piece of string” depending on a range of factors.
“It depends on external parties. You can set it up in two months if you have an easily replicable strategy and all your service providers in place. That would be an ambitious timeline. If you have any complications though, that can easily blow out. It also depends how much interest they have already and how much they need to tailor the documents to attract people in those jurisdictions.”
Other considerations for fund managers going down this route include contractual arrangements, formation costs, fund and share structure, governance, custodial arrangements, and privacy positions.
