The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Nominees

  • From Vol. 5 No.29 (Jul. 26, 2012)

    Recent Cayman Grand Court Decision Demonstrates the Practical and Legal Challenges of Investing in Hedge Funds through Nominees

    A recent decision of the Grand Court of the Cayman Islands (Court) addressed a range of relevant questions for hedge fund managers and investors, among them: Does a side letter survive a fund restructuring?  Does a side letter entered into between a hedge fund and a beneficial investor bind a nominee through which the beneficial investor subsequently invests?  Is a beneficial investor a party to a hedge fund’s governing documents where it invests through a nominee?  What is the legal status of a side letter entered into prior to (rather than simultaneously with) an investment in a hedge fund?  In short, the decision illustrates the myriad legal and practical challenges faced by investors that invest in hedge funds through nominees; the relevance of the identity of contracting parties; and the scrutiny to which governing documents are subject in the course of hedge fund restructurings.  This feature-length article describes the factual background and legal analysis in the decision, and extracts two key lessons for investors that wish to invest in hedge funds via nominees.  See also “Investing in Cayman Islands Hedge Funds Through a Nominee or Custodian: An Unforeseen Peril,” The Hedge Fund Law Report, Vol. 5, No. 4 (Jan. 26, 2012).

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  • From Vol. 5 No.4 (Jan. 26, 2012)

    Investing in Cayman Islands Hedge Funds Through a Nominee or Custodian: An Unforeseen Peril

    The advantages of investing in corporate or limited partnership hedge funds through a nominee or a custodian registered as a shareholder or a named limited partner are well known.  Principally, the investor retains anonymity or some other perceived business advantage.  On the other hand, investing in corporate or limited partnership hedge funds through a nominee involves the risk of misappropriation by the nominee, ignoring of instructions or the loss of or delay in recovering dividends or redemption proceeds in the event of the insolvency of the nominee.  These disadvantages may of course be avoided or minimised by careful selection of the nominee, and by close regard to the terms of the nominee agreement (although, typically, the nominee will have standard terms, departure from which will be difficult, if not impossible).  There is another area of potential disadvantage – and that other area is the focus of this guest article by Christopher Russell, Partner and head of the litigation and insolvency department of Ogier, Cayman Islands, and Shaun Folpp, a Managing Associate in the litigation and insolvency department of Ogier, Cayman Islands.

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