UBS defection to Ireland sparks fund flight concern

| 22/10/2015 | 1 Comment

CNS Business(CNS Business): The Cayman hedge fund industry has come under attack again after a high profile fund structure redomiciled to Ireland, prompting claims that “hundreds” more will follow suit, alongside suggestions that Ireland is poised to capitalise on the uncertainty surrounding EU access for Cayman funds.

According to the Financial Times, UBS transferred a $565 million fund of hedge funds from Cayman into an Irish structure called an ICAV (Irish Collective Management Vehicle). UBS has said there has been demand among its investors for vehicles with more regulation, and industry association, Irish Funds, said it expects hundreds more funds to switch their offshore status for the ICAV over the next six months.

Head of hedge fund solutions at UBS, Bill Ferri, was quoted by the FT, saying that the transition to Ireland increases the breadth of sales and “is easier than trying to fit the square peg of a Cayman fund into the round hole of the European market”.

The idea of a fund moving away from Cayman in this manner is quite rare so if such a scenario were to take place it would be seen as a major coup for Ireland, which along with Luxembourg is one of the two most prominent European-based fund jurisdictions.

The ICAV, introduced earlier this year, is fast becoming the fund structure of choice in Ireland. They were designed to be much more attractive for US investors, with a tax efficient corporate structure, similar to Cayman’s master feeder funds. As Ireland is a member of the EU, the ICAV can be easily distributed to investors across Europe, either under the UCITS banner or through the AIFMD Passport system.

“Cayman’s reputation as the world leader for alternative investment fund structures makes us an obvious target in what Mr Ferri admits is ‘a marketing opportunity’, but overall the comments do not give much cause to believe that Cayman will be losing pole position any time soon,” commented Richard Addlestone, partner with Solomon Harris.

Marco Martins, managing partner at Harneys, said that Ireland has been predicting it would take business from Cayman for years now.

“Although AIFMD presents certain uncertainties for some managers, the reality is that to date Cayman remains by far the leading global funds jurisdiction as well as the leading jurisdiction in Europe,” he said. “If you need evidence to support Cayman’s dominance, have a look at the recent release from ESMA on the assessment of jurisdictions and the exhibits include numbers for the different funds jurisdictions.   Furthermore Cayman has and continues to implement industry leading and appropriate legislation to remain accessible globally including enabling AIFM rules, which should allow Cayman funds which choose to, to be AIFMD passport eligible. In conclusion, we don’t see changes which would lead to Ireland somehow becoming more competitive than it has been.”

Cayman is still waiting for confirmation that it will receive an AIFMD Passport, which will be needed to sell funds in Europe once the private placement regime is phased out over the next few years. European securities regulator ESMA has announced that Cayman will feature among the second wave of non-EU nations to be assessed, once it completes work on the first six countries. The Cayman Islands government has also recently passed legislation to accommodate the AIFM Directive, creating an opt-in regime for managers and funds,

“The article’s claims that there is uncertainty over the AIFMD passport have been overtaken by ESMA’s latest announcement that Cayman is in the next batch it will assess,” Addlestone added. “The important thing is to make sure that Cayman maintains its leading position and the good working relationship we have between industry, the Cayman Islands government and our regulator (CIMA,) plays a major role.”

This collaborative effort has brought changes in the law and introduced the new products that international clients really want, Addlestone said, such as the new Exempted Limited Partnership law and legislation currently being developed for LLCs.

“Internationally, in addition to being confirmed be in line for an ESMA assessment for the AIFMD passport, Cayman is in the Early Adopter Group for the Common Reporting Standard, so we are at the forefront of these developments, however we should of course be wary of resting on our laurels,” he said.

Against this background, according to data just released by the Cayman Islands Monetary Authority, hedge funds in Cayman continue to be formed at a rapid rate, demonstrating the preference of international investment managers. The past two quarters have been a particularly active period, as the number of funds regulated by CIMA has grown by 460 from the end of March 2015, taking the net total, accounting for any cancellations, to 11,215 at the end of September.

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Category: Finance, Financial Services

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  1. Anonymous says:

    If the financial and corporate laws are equal, people will go to Ireland everytime. Your success depends on somehow being more accomodating than places like Ireland. Unfortunately that is increasingly difficult.

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