Capitalising onOffshore Investment                FundsPresented by Shayne Krige               May 2012
Werksmans History                    Established in Cape Town and                    Johannesburg in 1900’s
Werksmans Today                  One of the leading corporate                  commercial firms in Africa                 ...
Werksmans AccoladesExpertise and lawyers recognised internationally including:    Best Lawyers International    Chambers G...
Investment Funds Team Shayne Krige - 12 years heading up investment funds  practice of a European law firm based in Paris...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regu...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regu...
Opportunities in the Offshore Fund Market Tax Changes Exchange Control Changes Interest in Africa
Opportunities - Tax‣Two Tax Issues:‣Residency - place of effective management   ‣POEM results in tax on worldwide income‣ ...
Opportunities - Tax Steps towards an investment management exemption    2012 Budget Speech     “This [tax] risk has depr...
Opportunities - Tax Excon changes driving demand for offshore products    Companies can invest R500m offshore    Indivi...
Opportunities - Africa An increasingly popular investment destination Private Equity - energy, renewables, infrastructur...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regu...
What is Offshore? Tax Havens? Outside South Africa
What is a Fund                 Public Fund                 Private Fund                 Open-ended                 Collect...
What is an Investment Manager? Talkers    Investment Advisor recommends (non-discretionary) Doers    Investment Manage...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds    Regulatory...
Offshore Fund Rules - General Unregulated Fund - no regulation if no right to redeem  (“closed-ended”) Regulated Fund - ...
Unregulated Fund Loophole                     Closed-Ended                   Open-EndedInvestors            Right to deman...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds    Regulatory...
Fund Structures - Corporate Structure  Onshore  Manager             Management              Agreement  Advisory Agreement ...
Fund Structures - Limited Partnership  Onshore  Manager             Management              Agreement  Advisory Agreement ...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds    Regulatory...
Considerations When Choosing Fund Jurisdiction Type of investors targeted Home country of targeted investors Public ima...
Popular Offshore Fund Jurisdictions                       Channel  BVI                       Islands                 Luxem...
Popular Offshore Jurisdictions           No. of Co.’s   No. of   Currency   GDP      Growth                          Funds...
Popular Offshore Jurisdictions                      British Virgin Islands                           Cayman IslandsFund Ty...
Popular Offshore Jurisdictions                    Jersey                     Isle of Man Fund Type      COBO Only       Au...
Popular Onshore Jurisdictions                           Luxembourg                                   IrelandFund Type     ...
Other Contenders            Advantages                  DisadvantagesMalta       EU Member State             Lack of prece...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regu...
Offshore Regulation of Managers Discretionary investment management is invariably  regulated Non-discretionary investmen...
Attributes of a Good Jurisdiction               Manager                                 FundConvenience of location - scho...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regu...
International Developments BVI - Securities & Investment Business Act    Codifies existing practice    Investment Advis...
International Developments     Alternative Investment Fund Managers Directive                        (AIFMD)              ...
What is the AIFM Directive? Aims to introduce a harmonized regulatory framework  across the EU for EU-established manager...
Main requirements for EU AIFMs AIFMs must be authorised and subject to supervision in  their home member state; Minimum ...
Summary of Legislative ProcessTimetable          Key Milestones29 April 2009      Draft Directive published by EU Commissi...
International Developments United States Foreign Account Tax Compliance Act  (FATCA)    Funds are “invited” to enter int...
Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regu...
Fund Issues We’re Working On MF Global Collapse SA fund restructurings Offshore fund setup Foreign Managed Account Dis...
THANK YOU                                     Shayne Krige                                        skrige@werksmans.com    ...
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Capitalising on Offshore Investment Funds: Shayne Krige, Werksmans Attorneys

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Capitalising on Offshore Investment Funds: Shayne Krige, Werksmans Attorneys

  1. 1. Capitalising onOffshore Investment FundsPresented by Shayne Krige May 2012
  2. 2. Werksmans History Established in Cape Town and Johannesburg in 1900’s
  3. 3. Werksmans Today One of the leading corporate commercial firms in Africa 4 offices in South Africa, Lex Africa in 54 African countries Over 200 lawyers
  4. 4. Werksmans AccoladesExpertise and lawyers recognised internationally including: Best Lawyers International Chambers Global - The World’s Leading Lawyers for Business IFLR1000 - The Guide to the Worlds Leading Financial Law Firms Legal500 PLC Which Lawyer The International Who’s Who LegalOur leadership in M&A has been recognised by DealMakers, Ernst & Young and MergerMarket
  5. 5. Investment Funds Team Shayne Krige - 12 years heading up investment funds practice of a European law firm based in Paris Dylan Cunard - 7 years in investment funds with a magic circle firm in London Doelie Lessing - international tax expert Ina Meiring - regulatory expert ex-UNISA law lecturer Work closely with M&A and corporate commercial teams
  6. 6. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regulation of managers International Developments
  7. 7. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regulation of managers International Developments
  8. 8. Opportunities in the Offshore Fund Market Tax Changes Exchange Control Changes Interest in Africa
  9. 9. Opportunities - Tax‣Two Tax Issues:‣Residency - place of effective management ‣POEM results in tax on worldwide income‣ Source - permanent establishment ‣SA manager creates PE in SA
  10. 10. Opportunities - Tax Steps towards an investment management exemption  2012 Budget Speech “This [tax] risk has deprived local fund managers of foreign investment business and has even forced certain local fund managers to relocate abroad. It is proposed that a legislative carve-out be created for foreign investment funds so that these funds are not inadvertently subject to worldwide taxation.”
  11. 11. Opportunities - Tax Excon changes driving demand for offshore products  Companies can invest R500m offshore  Individuals can invest R4m offshore
  12. 12. Opportunities - Africa An increasingly popular investment destination Private Equity - energy, renewables, infrastructure, property Hedge fund interest growing
  13. 13. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regulation of managers International Developments
  14. 14. What is Offshore? Tax Havens? Outside South Africa
  15. 15. What is a Fund Public Fund Private Fund Open-ended Collective Investment Scheme Closed-ended Collective Investment Scheme Investment Club
  16. 16. What is an Investment Manager? Talkers  Investment Advisor recommends (non-discretionary) Doers  Investment Manager implements (discretionary)
  17. 17. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds  Regulatory overview  Fund structures  Popular jurisdictions Offshore regulation of managers International Developments
  18. 18. Offshore Fund Rules - General Unregulated Fund - no regulation if no right to redeem (“closed-ended”) Regulated Fund - private, professional, public and administered regimes
  19. 19. Unregulated Fund Loophole Closed-Ended Open-EndedInvestors Right to demand Redemption in the discretion ofRedemption Rights redemption. directors.Form of Redemption Redemption Request Redemption InstructionNoticeRegulation Not regulated RegulatedSuited To Private Equity, Real Estate, Liquid funds, Hedge Funds, Private Funds Public Funds, Retail FundsExamples Morgan Stanley China A- T. Rowe Price, Fidelity Share Fund, Alpine Total Investments Dynamic, Adams Express
  20. 20. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds  Regulatory overview  Fund structures  Popular jurisdictions Offshore regulation of managers International Developments
  21. 21. Fund Structures - Corporate Structure Onshore Manager Management Agreement Advisory Agreement Offshore Investors Manager Advisor Management M P Offering Bank Agreement Shares Shares Memorandum Administrator Banking Administration Agreements Fund Agreement Company Custodian Registered Custodian Agreement Agent Agreement Registered Agent Assets
  22. 22. Fund Structures - Limited Partnership Onshore Manager Management Agreement Advisory Agreement Offshore General Investors Partner Onshore Advisor Limited Liability Unlimited Liability Limited Partnership Agreement Offering Memorandum Bank Administrator Banking Limited Administration Agreements Partnership Agreement Custodian Custodian Agreement Assets
  23. 23. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds  Regulatory overview  Offshore fund structures  Popular jurisdictions Offshore regulation of managers International Developments
  24. 24. Considerations When Choosing Fund Jurisdiction Type of investors targeted Home country of targeted investors Public image of jurisdiction in home country Predicted size of fund Tax rules in manager jurisdiction
  25. 25. Popular Offshore Fund Jurisdictions Channel BVI Islands LuxembourgCayman EU Mauritius Malta IrelandIslands Listed Regulation & Tax
  26. 26. Popular Offshore Jurisdictions No. of Co.’s No. of Currency GDP Growth Funds RateBVI 775,000 2,600 USD $0.9Bn 11%Cayman 70,000 10,000 USD $1.9Bn 6.5%Jersey 32,000 578 GBP $5.1Bn 3.8%
  27. 27. Popular Offshore Jurisdictions British Virgin Islands Cayman IslandsFund Type Public Private Professional License Registered Administered Exempt Fund Fund Fund d Fund Fund Fund FundRegulation High Low Low High Low Low NoneInvestor Retail “Club” Institutional, Retail Institution Retail RetailType high net al, high worth net worthNumber of Unlimite 50-300 Unlimited Unlimite Unlimited Unlimited <15Investors d dMin. None None $100,000 None $100,000 None NoneInvestment
  28. 28. Popular Offshore Jurisdictions Jersey Isle of Man Fund Type COBO Only Authorised Professional Administered Scheme Investor Fund Fund Regulation Flexible High Medium Low Type of Generally Retail Professional “Experienced” Investor professional. No more than 50. Investment Few Few None None Restrictions Min. None but None $100,000, None Investment £250,000 for $1m net PIRS worth Local None Licensed Day-to-day Custodian Service Manager, operations Providers Trustee Bank
  29. 29. Popular Onshore Jurisdictions Luxembourg IrelandFund Type UCITS Sophisticated Retail Fund Professional Qualifying Investor Fund Investor Fund Investor FundRegulation High Medium High Medium MediumType of Retail Institutional, Retail Institutional, high Institutional,Investor high net-worth net-worth high net-worthInvestment Comprehensive Yes but more Comprehensive Comprehensive if ComprehensiveRestrictions flexible if UCITS UCITS if UCITSMin. None €125,000 None €125,000 €250,000InvestmentLocal Service Administrator, Administrator, Administrator, Administrator, Administrator,Providers custodian, custodian, custodian custodian custodian (manager) auditor
  30. 30. Other Contenders Advantages DisadvantagesMalta EU Member State Lack of precedent Flexible Regime Limited service providers Accessible Regulator EU rules Low TaxMauritius African investment New regime Potential Excon advantage International image - due diligence Close to South Africa Limited service providers Low Tax Far from Europe and USA
  31. 31. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regulation of managers International Developments
  32. 32. Offshore Regulation of Managers Discretionary investment management is invariably regulated Non-discretionary investment advice is often not regulated
  33. 33. Attributes of a Good Jurisdiction Manager FundConvenience of location - schools, Meets investor requirementslifestyle etc.Appropriate regulatory environment Appropriate regulatory environmentAppropriate tax for company and No tax, low setup and running costsownersAccess to quality service providers Convenience -travel, time zone, currency, language Compatibility of vehicle with strategy
  34. 34. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regulation of managers International Developments
  35. 35. International Developments BVI - Securities & Investment Business Act  Codifies existing practice  Investment Advisors now regulated  Local representative required  Private and professional funds must have offering memorandum, auditor, manager, custodian and administrator  $100,000 minimum in professional fund for ALL investors
  36. 36. International Developments Alternative Investment Fund Managers Directive (AIFMD) Dylan Cunard
  37. 37. What is the AIFM Directive? Aims to introduce a harmonized regulatory framework across the EU for EU-established managers of alternative investment funds (AIFM). Designed to regulate hedge funds and private equity funds which were blamed for some of the instability in the financial crisis. Supported by countries like Germany and France and has been criticized by the UK. Marketing Passports available for EU-established AIFMs (from 2013) and possibly for Non-EU AIFMS (from 2015) to allow marketing across the EU once authorization is granted in one Member State
  38. 38. Main requirements for EU AIFMs AIFMs must be authorised and subject to supervision in their home member state; Minimum capital of at least EUR125,000; Reporting requirements such as annual reports; Restriction on delegation of manager’s duties; Independent valuation of assets required; Stricter regulation of depositories; Restrictions on manager’s pay (Similar to the restrictions we have seen for bankers). CARVE OUTS – e.g. de minimis for small funds, supranational institutions, pension and social funds
  39. 39. Summary of Legislative ProcessTimetable Key Milestones29 April 2009 Draft Directive published by EU Commission1 July 2011 Publication of the Directive in the EU Official Journal of the European Union23 February 2012 ESMA published a discussion paper on the key concepts of the AIFMD14 March 2012 HM Treasury consultation paper on the transposition of the AIFMD into UK law, open until 4 May 201222 July 2013 AIFM Directive must be transposed22 July 2013 Final transposition into Member State law22 July 2014 AIFMs need to be authorised2015 ESMA to report on functioning of the passport system for EUAIFs and AIFMs national private placement regimes and extension of passport system to non-EU AIFs and AIFMs2015 Commission to adopt implementing legislation setting date when passports for non-EU AIFs and AIFMs will be available2018 ESMA to publish report on passport functioning plus possible end to private placement regimes2018 Commission due to adopt further implementing legislation setting date for end of private placement regimes
  40. 40. International Developments United States Foreign Account Tax Compliance Act (FATCA)  Funds are “invited” to enter into an agreement with the IRS  Procedure to identify US customers and report investments to IRS  Obtain a waiver from each investor (including non-US). If investor refuses, fund must forcible redeem  Penalties - 30% withholding on all payments from US payors (not just US revenue) and US FSP’s must close account of fund that fails to sign agreement (exclusion from US securities market)  Implementation 2012 onwards
  41. 41. Presentation Overview Opportunities in the offshore fund market Definitions Offshore regulation of funds Offshore regulation of managers International Developments
  42. 42. Fund Issues We’re Working On MF Global Collapse SA fund restructurings Offshore fund setup Foreign Managed Account Distribution UCITS Distribution Illiquidity Issues Fund Migrations ETF Structuring SIBA regulations in the BVI
  43. 43. THANK YOU Shayne Krige skrige@werksmans.com May 2012 Nothing in this presentation should be construed as formal legaladvice from any lawyer or this firm. Readers are advised to consult professional legal advisors for guidance on legislation which may affect their businesses.© 2011 Werksmans Incorporated trading as Werksmans Attorneys. All rights reserved.

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