One of the potential consequences of the AIFM Directive is that fund managers, particularly those with a largely European investor base, may look to supplement existing offshore platforms with parallel onshore structures. But as Oliver Godwin (pictured), a partner based in Ogier's London office, points out, the Cayman Islands remain the pre-eminent fund jurisdiction for London hedge fund managers.
“We are doing a lot of hedge and private equity work in Cayman as well as significant hedge fund work in the BVI. There’s a lot of European alternative funds work being done in Jersey and Guernsey as well so across all our jurisdictions there is still an enormous amount of interest from London managers,” explains Godwin.
Rather than managers turning their backs on offshore markets come 2018, when private placements could feasibly be phased out under the AIFM Directive, Godwin thinks there’ll be an increasing trend towards ‘co-domiciliation’: something that is, in fact, already underway.
“I don’t think we’ll see a complete crossover to bring everything onshore,” comments Godwin. “Offshore structures established in jurisdictions such as Cayman provide the ideal environment for a particular type of investor who invests through those vehicles. They want a jurisdiction that is well regulated but not overly so: by comparison, onshore jurisdictions tend to be more regulated.”
Nevertheless, Ogier are seeing increased demand from their investment fund clients for structures in European-based jurisdictions. So much so that a new office is to open in Luxembourg in Q1 2012.
Well-known Luxembourg practitioner Francois Pfister is joining from OPF Partners, while Daniel Richards, a partner in Ogier’s Jersey office, will also relocate there. The office will have six or seven staff initially and is scheduled to open in Q1 2012 as soon as the regulatory process is approved.
“Our investment fund clients are asking for a boutique service where we’ll be setting up parallel structures for them. For some of our existing funds, based in Guernsey and Jersey, we’ll also be setting up Luxembourg-based private equity acquisition structures that will sit underneath the offshore closed-ended fund,” notes Godwin.
Managers might consider co-domiciliation – that is maintaining an offshore vehicle in conjunction with a European-based one – because it allows them to more easily market their funds into Europe says Godwin, adding: “They’re looking at their potential investor base. The issue is less about regulation per se and more the fact that an onshore European fund gives them access to a wider market. However, it’s unlikely the Cayman model will be completely replaced. Our Luxembourg office will enable clients to use a single, efficient platform for those structures.”
The benefit to London-based managers considering co-domiciliation is that if they retain their Cayman structures “they’ve got a clear path into Europe via Luxembourg. Places like Cayman, Guernsey and Jersey are having high-level negotiations with European regulators to obtain some sort of co-operation agreement so that everyone is on the same page,” confirms Godwin.
Not everyone will favour co-domiciliation. Those looking to get into Europe could, says Godwin, add a European-type regulatory structure to their product suite, but some managers will choose not to go down that path simply because it doesn’t fit their trading strategy. “Some London managers will choose to go where there are investor opportunities. Many, for whom the Cayman model works perfectly well, will not feel the need to change their position and will remain with their existing offshore structure.”