The Hedge Fund Law Report

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

Articles By Topic

By Topic: Segregated Portfolio Companies

  • From Vol. 5 No.48 (Dec. 20, 2012)

    Speakers at Walkers Fundamentals Hedge Fund Seminar Discuss Recent Trends in Hedge Fund Terms, Corporate Governance, Side Letters, FATCA and Cayman Fund Regulation

    On November 8, 2012, international law firm Walkers Global hosted its annual Walkers Fundamentals Hedge Fund Seminar in New York City.  Speakers at this event addressed various issues of current relevance to hedge fund managers, including: recent developments in fund structuring and terms; fund governance; recent Cayman legal developments (including those relating to side letter disputes); implications of the Foreign Account Tax Compliance Act for hedge fund managers; and regulatory developments, including proposed amendments to the Cayman Islands Exempted Limited Partnership Law and the impact of the EU’s Alternative Investment Fund Managers Directive.  This article summarizes noteworthy points discussed during the seminar on each of the foregoing topics.  For our coverage of last year’s Walkers Fundamental Hedge Fund Seminar, see “Speakers at Walkers Fundamentals Hedge Fund Seminar Provide Update on Hedge Fund Terms, Governance Issues and Regulatory Developments Impacting Offshore Hedge Funds,” The Hedge Fund Law Report, Vol. 4, No. 42 (Nov. 23, 2011).

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  • From Vol. 5 No.31 (Aug. 9, 2012)

    Structuring, Regulatory and Tax Guidance for Asia-Based Hedge Fund Managers Seeking to Raise Capital from U.S. Investors (Part One of Two)

    U.S. hedge fund investors are continuously seeking attractive investment opportunities and are increasingly expanding their search to incorporate Asia-based hedge fund managers.  At the same time, Asia-based hedge fund managers are navigating the challenging capital raising environment by reaching beyond their borders to attract U.S. investors.  However, Asia-based fund managers seeking to attract capital from U.S. investors must contend with a plethora of U.S. and foreign regulations in raising and managing such capital.  As such, Asia-based fund managers must work closely with U.S., Cayman and local counsel to develop a cohesive and carefully thought out fund and management structure, intertwining the various regulatory requirements of the applicable jurisdictions, all of which must be adhered to by the fund manager, any sub-advisers and their respective affiliates.  This is the first in a two-part series of guest articles designed to help Asia-based fund managers navigate the challenges of structuring and operating funds to appeal to U.S. fund investors.  The authors of this article series are: Peter Bilfield, a partner at Shipman & Goodwin LLP; Todd Doyle, senior tax associate at Shipman & Goodwin LLP; Michael Padarin, a partner at Walkers; and Lu Yueh Leong, a partner at Rajah & Tann LLP.  This first article describes the preferred Cayman hedge fund structures utilized by Asia-based fund managers, the management entity structures, Cayman Islands regulations of hedge funds and their managers and regulatory considerations for Singapore-based hedge fund managers.  The second article in the series will detail a number of the key U.S. tax, regulatory and other considerations that Asia-based fund managers should consider when soliciting U.S. taxable and U.S. tax-exempt investors.

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  • From Vol. 5 No.29 (Jul. 26, 2012)

    Cayman Islands Segregated Portfolio Companies: New Case Law Highlights Attractions for Promoters and Hedge Fund Managers

    Typically, hedge fund managers use exempted companies organized in a master-feeder structure or in an umbrella fund structure to organize their funds.  Presently in the Cayman Islands, approximately 70% of funds are organized using these structures.  However, with the introduction in 1998 of segregated portfolio companies (SPCs) (known in other jurisdictions as “single account” or “protected cell” companies), an opportunity was given to promoters to utilize a structure that was less expensive and more efficient than the traditional structures.  Although a seemingly attractive fund vehicle, SPCs have not gathered a great following in the Cayman Islands.  At present, only around 10% of Cayman registered funds are SPCs, and that proportion has been relatively constant in recent years.  Their use has been generally limited to single investor funds where there are a large number of participants and there is a need to have the ability to create new portfolios quickly and simply.  However, with the Cayman Islands Court of Appeal (Court) handing down its decision in ABC Company (SPC) v. J & Co Ltd in June 2012, it is opportune to revisit the option available to promoters and managers of using an SPC as an attractive alternative to the vehicles more commonly used to establish hedge funds in the Cayman Islands.  In a guest article, Christopher Russell and Jayson Wood, partner and counsel, respectively, in the litigation and insolvency department of Appleby (Cayman) Ltd., discuss: the purposes and the general advantages of SPCs; the reasons for the apparent unpopularity of SPCs; the facts and legal analysis of the ABC decision; and four key structuring lessons for hedge fund managers looking to use the SPC structure following the ABC decision.

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  • From Vol. 5 No.23 (Jun. 8, 2012)

    Cayman Court of Appeal Holds that Soft Wind-Down of One or More Segregated Portfolios of a Segregated Portfolio Company Does Not In and Of Itself Justify a Judicial Winding-Up of the Entire Company

    In the wake of the 2008 financial crisis, some troubled hedge funds organized under the laws of the British Virgin Islands (BVI) and the Cayman Islands elected to suspend redemption rights and undertook “soft wind-downs” of their operations.  See Cayman Hedge Funds, Soft Wind-Downs and Disclosure,” The Hedge Fund Law Report, Vol. 4, No. 7 (Feb. 25, 2011).  In response, fund investors sought to gain leverage by petitioning to force the funds into involuntary liquidation on the ground that the funds were no longer capable of carrying out their stated business purposes.  BVI and Cayman courts have taken conflicting views on whether a soft wind-down is a valid ground for an involuntary winding-up petition.  The Cayman Island Court of Appeal recently addressed a novel question involving whether the winding down of the various segregated portfolios comprising a “segregated portfolio company” (SPC) would warrant winding down of the entire SPC.

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