So you’ve got a great idea for your fund’s investment strategy, perhaps you have tested it and developed a track record and maybe you even have proposed seed financing, but who else needs to be involved in setting up and launching your fund? I have set out a list of the key players below. Cayman and BVI funds are not restricted to using Cayman and BVI service providers. They have the flexibility to appoint service providers from all over the world, subject to some technicalities which are beyond the scope of this article.
You’re going to need expert offshore lawyers in the jurisdiction where the fund is to be incorporated, to advise on the fund structure and documentation. If you haven’t decided where to incorporate, you might want to choose lawyers who can advise on several offshore jurisdictions and give an unbiased view as to where would be best for you (look no further than Harneys!). You’re also likely to appoint onshore lawyers in the jurisdiction where you, as the investment manager, are located. The onshore lawyers may either act as lead counsel and project manage the whole launch process or work on a narrower basis to provide regulatory advice to the investment manager on its role.
Although you may regard yourself as the investment manager, you will need to set up a corporate vehicle as the investment manager (which you may become a director of). Your lawyers will help you decide on the best location and appropriate licensing for the investment management vehicle. You may also want to appoint specialist investment advisers, depending on the strategy / geographic range of the fund’s proposed investments.
Choosing the right administrator for your fund is also key to a successful launch, as they provide essential fund accounting, administration and investor services, including processing subscriptions and redemptions of shares. They may also provide regulatory reporting services, eg. for compliance with anti-money laundering obligations, and middle office services, if required.
In order to separate the assets of the fund from the investment manager and to ensure their safekeeping, you will need to appoint a financial institution (often a bank) as custodian. Sometimes, this role is fulfilled instead by the prime broker (see below).
Prime brokers will provide the fund with prime brokerage, securities lending and financing services. Since the 2008 financial crisis, funds typically appoint more than one prime broker to reduce counterparty risk. Prime brokers may also offer operations, execution and clearing services and capital introduction services to institutional investors.
Not all Cayman and BVI funds are required to appoint an auditor, although some will choose to in order to attract investors, even when it is not obligatory. If the fund is regulated by the Cayman Islands Monetary Authority (CIMA), it must appoint an auditor from an approved list of auditors issued by CIMA and the fund must submit audited financial statements. The list includes the Cayman branches of the large international accountancy firms as well as various local Cayman firms. BVI regulated funds that are required to appoint an auditor and submit financial statements have wide flexibility when appointing auditors and there is no requirement for them to be based in the BVI. For public funds, the auditor must be approved by the Financial Services Commission.
There is no requirement in Cayman or the BVI to appoint directors who are independent of the investment manager. In practice however investors typically expect a majority of independent directors to be appointed to the board. These directors can come from a range of backgrounds, including accounting and legal, and provide valuable independent input and review to the board. Although this may look like a lot of advisers need to be involved in the launch process, with good project management, if you select the right service providers you’ll find they’ll all work together to turn the vision for your fund into a successful reality.