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OffshoreReview

April 2013

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UNDOUBTEDLY, 2012 cappeda significant period ofinternationalization for theoffshore legal market asmore firms moved to implement globalbusiness strategies. Among the biggestheadlines, at the beginning of that yearOgier became the first offshore firm tolaunch in Luxembourg. In July, BedellCristin opened the doors to its newSingapore office, while in June, ChannelIslands heavyweight Carey Olsenannounced it would be launching in theCayman Islands following a doublepartner hire from Maples and Calder.Indeed, Channel Islands based firmshave been particularly active. Accordingto their offshore rivals, these moves arelargely defensive.

These moves are certainly strategicand in part a response to the actions offirms such as ourselves over the yearsin setting up in the Channel Islandsand elsewhere, says Alex Carus, financeand corporate partner in the Jerseyoffice of top five offshore firm Walkers.While the firms that have expandedmay well say the moves were clientdriven, it is also a reflection of thedownturn in the global economy thatthe established Channel Islands firmsare looking further afield for revenueand expanding their offering.

Although that may be largely true,firms based outside the ChannelIslands are also looking to shore uptheir international credentials. Appleby,for example, opened in Shanghai inApril 2012, its first office in mainlandChina. High profile hires not beenuncommon either, and although Maplesand Calder may have lost two partnersto Carey Olsens new Cayman office inJune 2012, it also hired a seven-partner

team from Walkers into its Cayman andBritish Virgin Islands (BVI) bases,citing the resurgence of private equityas a key reason behind the move.

Whatever the reasons, firms arecontinuing to invest and the mood ofthe offshore market seems generallyupbeat.

Island hoppingMuch has been made of the trend ofoffshore law firms scrambling to launchin onshore centers. However firms arealso continuing to invest in offshoremarkets that fall outside theirtraditional strongholds. For instance,Mourant Ozannes, which was formedthrough the merger of GuernseysOzannes and Jersey-headquarteredMourant du Feu & Jeune in 2010,

recently opened an office in the BVI the firm also already has a platform inCayman.

We continued our expansion withthe opening of a three partner office inthe BVI in September 2012; partnerMichael Williams, who has extensivecorporate and banking experience andis a BVI-qualified solicitor, relocated tothe BVI from the Channel Islands andwas joined in the BVI by two newMourant Ozannes partners, RachaelMcDonald and Shaun Folpp, both ofwhom joined from competing offshorefirm, Ogier, says Robert Duggan,partner in the Cayman Island office ofMourant Ozannes. The three partnerswork closely with the BVI qualifiedlawyers across the firm and MourantOzannes is now able to provide BVIlegal advice directly from the BVI andfrom our other offices in Asian andEuropean time zones.

Although it may seem an obviousmove for Mourant Ozannes, the fiercerivalry between global financial centersand the working relationships betweenonshore and offshore firms means it isnot quite that simple. As Dugganexplains, it is important to select newoffices with more than usual care.

Mourant Ozannes has continued tobuild its platform in established goldstandard offshore financial centers andhas rejected the siren call of competingin onshore jurisdictions for the tensionwhich doing so would introduce to manyof our key relations onshore, he says.Our jurisdictional offering encompassing BVI, Cayman, Guernseyand Jersey is clear and settledstrategically and much as we do notseek to pursue a strategic directionwhich would have us collide with our

Shored upWhile other legal markets are patiently waiting to see how global recovery unfolds, the offshorelaw firms are making their move, with high profile lateral hires, new office launches andambitious international strategies becoming the norm.

Maria Jackson reports

Alex Carus, finance and corporate partnerat Walkers' Jersey office

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onshore relations, we do not wish to riskdilution of our identity and theconcentration of our excellent reputationin our core markets by pursuing a flag-planting agenda.

The success of that focused strategy isevidenced by its involvement in some ofthe offshore worlds biggest deals. Mostsignificantly, in early 2012 Jersey-basedpartner Robert Hickling and seniorassociate Paul Martin led the firmsadvice to FTSE250 engineering group,Charter International, in its 1.6bntakeover by Colfax Holdings UK. MourantOzannes worked closely on thetransaction with Magic Circle firmSlaughter and May. Of course, firms havebeen responding to clients demands forbroader offshore networks for quite sometime. Before Mourant Ozannes, CareyOlsen provided a useful cross-ChannelIsland merger model in 2003 following thelink up between Carey Langlois ofGuernsey and Olsens in Jersey. Then awave of foreign offshore firms entered intothe Channel Islands, including Appleby.

Originally founded in Bermuda,Appleby has grown to become one of theworlds largest offshore law firms, fieldingoffices in eight offshore financial centersas well as onshore bases in citiesincluding London and Shanghai. The firmentered into the Channel Islands throughits 2006 merger with Bailhache Labessein Jersey and its Greenfield Guernseylaunch in 2010. Appleby points out thatthe continued expansion of ChannelIsland firms in particular is nocoincidence.

The Channel Islands have long beenat the very heart of multinationalfinancial transactions and are among thelongest established small internationalfinancial centers. The 2007/8 creditcrunch and financial crisis that followedthe Lehman collapse, together with no orslow growth in the UK and Europe andthe enduring Eurozone crisis has meantthat the focus of the Channel Islands lawfirms, and in fact all financial businessesin the Channel Islands, has beenbroadened to reach a much widerinternational audience, says AndrewWeaver, team leader of the funds &

investment services group in ApplebysJersey office. This has combined with theincreasing international expansion of ourclient base as investment opportunitiesfor companies and funds have movedtowards emerging and developingeconomies, we have gone with our clientsto assist them in pursuing these.

Applebys list of Channel Islands dealsdemonstrates the expansion of thegeographical focus of firms in thatjurisdiction. Among other matters, it wasrecently involved in the Glencore IPO (at$61bn, it was the largest ever UK IPO),and it also advised Citibank, N.A. as leadarranger and security trustee on theGuernsey law aspects of the provision ofa $1.1bn revolving credit facility from asyndicated group of lenders to variouslimited partnership structures and feederfunds within the Global InfrastructurePartners Group.

Now that the main offshore law firmsare spread so widely between the worldsmost prominent offshore hubs,international strategies are focusing moreon taking opportunities to grow inonshore and emerging markets.

The new realityIt is simply not enough for offshore lawfirms to expect to cover one offshore hub.As offshore financial centers look todistinguish themselves from their rivals,there has been a rush to identify eachjurisdiction as a leading market for aparticular practice area; for example,

Cayman is estimated to house about 75%of the worlds hedge funds, Jersey isknown for its strong banking sector,Bermuda is a market leader for captiveinsurance and BVI has the largestnumber of offshore companies.Luxembourg, while obviously a part ofmainland Europe is considered anoffshore center (although it has adoptedOrganisation for Economic Co-operationand Development standards on exchangeof information), also has a tremendousrecord for funds work and housesthousands of mutual funds. Law firmOgier has an extensive internationalfootprint with offshore offices in the BVI,Cayman, Guernsey, Jersey as well as asubstantive onshore presence. The firmcreated a real splash in 2012 when itbecame the first offshore firm to open inLuxembourg and the new office has beendoing well.

Luxembourg has had a very strongstart with a lot of demand from clientsacross the globe, especially in funds,which we expected, says Ray Wearmouth,managing partner in Ogiers BVI office.Asia has been a key focus for the Groupfor a number of years now and we have awide footprint there with offices in HongKong, Shanghai and Tokyo.

This is a general theme across theoffshore market.

Harney Westwood & Riegels is one ofthe ten largest offshore firms and has astrong track record in Asia. In January2013 it advised Hong-Kong-listed realinvestment holding company KaisaProperty Group and Hong Kong-listedreal estate developer Shimao PropertyGroup on senior notes listed on theOfficial List of the SGX-ST, the two issuestotalled $1.2bn.

For us, the primary drivers for growthin 2012 were emerging markets, inparticular Asia and Latin America, andthe expansion of our practices across theUK, Africa, Cyprus, BVI and Cayman,says Marco Martins, the managingpartner of Harneys Cayman Islandsoffice. Our Hong Kong office in particularhas experienced significant growth,driven in large part by our unique andmarket leading litigation practice and the

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ongoing demand for offshore structuresthroughout the region. As a result of thisdemand, we doubled the size of our HongKong office in 2012, just to keep up withthe increasing demand for our litigationservices as well as transactional workincluding funds, financing and generalcorporate work.

As Martins suggests, it is not justAsian emerging markets that are keepingfirms busy. Africa has become particularlybuoyant and firms are using Mauritius toaccess the potential of African markets.

Conyers Dill & Pearman is a leadingoffshore firm with offices in ninejurisdictions and it is seeing a noticeableincrease in work out of its Mauritius base.

Undoubtedly the most interestingbusiness trend is the increasingproportion of Africa-related business weare seeing, says Stephen Scali, head ofConyers Mauritius office. Mauritius isnow becoming a financial hub of choicefor African business, due to a multitude offactors including location, stability,bilingualism, and sound legal andfinancial sectors, as well as key fiscalbenefits. We are seeing increasingnumbers of global business companiesbeing set up here, and there is growingactivity in the M&A, funds, finance andbanking sectors. The core remainsinvestment holding, and we also foreseecontinuing sophistication of the financialservices offering in Mauritius.

Going forward Scali predicts that somenew legislation will also help driveMauritius business.

One interesting piece of recentlegislation is the Limited PartnershipsAct 2011. This is gradually having aneffect in terms of the establishment ofstructures in Mauritius, and we areseeing growing interest in the investmentand funds contexts, particularly forclients who are used to the limitedpartnership structure, he says. Anotherpromising piece of recent legislation isthe Foundations Act 2012, which providesfor foundations that are likely to appealto clients from civil law jurisdictions. As ajurisdiction, Mauritius is forward-thinking and versatile; this is reflected invarious other proposals that are expected

to become available in due course (suchas tax-free funds and LLPs).

Mauritius is certainly booming.However Asia, for now at least, remainsthe jewel in the new market crown formost offshore firms.

Ogier was the first offshore legal andadministration firm to open an office inmainland China, when it opened its doorsin Shanghai and it retains one of thelargest networks in the region of anyoffshore firm. Indeed, Asia has becomeincreasingly important to the firmsbusiness strategy as it has becomeintrinsically linked to so many otherparts of the firms business, particularlylitigation.

Litigation between joint-ventureparties based in Asia has been amainstay of the BVI courts since Iarrived in the BVI in 1996, says MichaelFay, partner in Ogiers BVI office. Thematurity of the BVI vehicle in the HongKong market suggests that this willremain to be the case, and in addition,other Asian markets are also coming onstream.

Fay goes on to suggest that Russia isalso playing an important part in the BVIlitigation scene. There was a deluge ofRussian litigation in the BVI followingthe wholesale use of BVI vehicles in theprivatization of the economies of theformer Soviet states. A number of thosecases were stayed in favour of theRussian courts in the early years, but asubtle change in approach to forum nonconveniens applications means that manyof those cases would now remain in theBVI, he says. As the use of BVI vehiclesmatures in the former Soviet states, it isanticipated that there will be an increasein joint venture type disputes beingresolved in the BVI Courts.

In fact, dispute resolution generallyhas become a hot topic across the offshoreworld.

Litigation stationsIn recent years, offshore law firms havebeen recording a rise in contentiousactivity across their networks. Generallyspeaking, the spike can be attributed toregulatory pressures as well as the

challenges brought by the global financialclimate since 2008.

Offshore heavyweight Carey Olsen hastop tier dispute resolution practices inGuernsey and Jersey and is excellentlyplaced to comment on the development oflitigation work in the Channel Islands.

There has been a significant andcontinued increase in litigation work inthe Channel Islands, reflective of theglobal financial climate and theincreasing scrutiny of financialinstitutions performance during thesedifficult times, says John Greenfield,managing partner of Carey OlsensGuernsey practice. Most of thisdevelopment is an inevitable consequenceof the successful growth of thecommercial sector since the 1970s. TheChannel Islands courts have been facedwith a number of major trials involvingwell known international institutions andindividuals in recent years and inparticular they have become probably themost important jurisdiction for thedevelopment of jurisprudence in areassuch as trust litigation andcompany/shareholder disputes.

There is no doubt that commercialfactors have made litigation in theChannel Islands necessary but asGreenfield goes on to explain, choosing tolitigate in the Channel Islands hasbecome more than a fluke ofcircumstance, clients are activelypromoting the services that Jersey andGuernseys courts provide.

The fact that the protagonists in suchlitigation are prepared to have their casesdealt with substantively by the ChannelIslands courts (especially when in somecases other jurisdictions might have beena possible option) demonstrates theconfidence placed in the local courts both in terms of expertise and speed ofdecision making, he says. Further,although the local courts call uponexpertise from senior members of theEnglish Bar in terms of judicialappointments, the advocacy itself remainsthe domain of locally qualified advocateswith the result that the local Bar is ableto field a number of highly experiencedand competent lawyers to conduct the

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litigation. This significantly enhances theservice which local firms can offerinternational clients in-house especially an intimate knowledge of howthe local courts are likely to manageparticular disputes.

Speaking to lawyers it seems thatcourts are managing to cope withdemand, which is lucky because it isunlikely to abate any time soon.

The boom in offshore litigation showsno sign of slowing, says Ogiers Fay. TheBVI Court has coped well because theJudge has been prepared to work veryhard. It seems likely that a second Judge,or at least a panel of deputy Judges, willneed to be established to cope with peaksin interlocutory litigation, and periodswhen a lengthy trial is ongoing.

It is also worth pointing out that thework is increasingly being performed bylocal lawyers.

There is no doubt that litigationoffshore has continued to expand both interms of volume of work, but also interms of volume of work done by offshorefirms (as opposed to onshore firmsoverreaching), says Mark Forte, head oflitigation and restructuring in ConyersBVI office. There has been something of acoming of age for jurisdictions such as theBVI, and a steady volume of work forother more established offshorejurisdictions such as Bermuda andCayman. The offshore product is alsocontinuing to emerge as a solid, safe andcommercially sensible option for cross-border business. That awarenessprompted by increasingly visiblecompliance measures to the user makesfor a more understood model. Wherethere is more emerging business there isalso more litigation.

The trend has become so marked thatspecialist courts have been established tohandle the increasingly complex nature ofthe litigation. The BVI launched itsCommercial Court in April 2009, while inCayman the Financial Services Division(FSD) was launched as part of the GrandCourt.

Cayman has a dedicated FinancialServices Division and at least five judgesavailable so as to avoid the lengthy

delays in listing seen in some otherjurisdictions, says Nigel Meeson, head oflitigation & restructuring in ConyersCayman Islands office. This includesthree part-time judges, two retired localpractitioners and one retired EnglishHigh Court Judge. In the last year, theCourt has handled three very long trials,but the judges took steps to ensure thateven during that period interlocutorymatters could be assigned to anotherjudge or could be heard on one day in theweek.

As the competition between offshorehubs increases, Court systems could havea more significant part to play indistinguishing each jurisdiction from itsrivals. Certainly, any differentiators arebeing seized upon as the boundariesbetween offshore and onshore blur.

Blurring the linesAlthough, offshore firms have long beenpresent in London, over the past fewyears Dublin, Hong Kong, Shanghai andSingapore have become increasinglyassociated with offshore strategy. Therace is on to move into new financialhubs to create a first-mover advantage.

After firms from the Cayman Islandsand Bermuda led the charge by looking toestablish a global offering in all the keytime zones, some of the Channel Islandsfirms are now playing catch up in aneffort to neutralize that competitiveadvantage, says Walkers Carus.

It is not a one-size fits all approach,however. Each firm is attempting to reachnew markets in a unique way.

Broadly, the larger firms areexpanding into new offshore jurisdictionshowever its fair to say that there aredifferent approaches to achieving thatexpansion, says Alex Ohlsson, managingpartner of Carey Olsens Jersey practice.Smaller firms in the market seem todifferentiate by specialising in more nicheareas of practice and legal expertise.

For the larger firms that are looking toaccess new markets, a merger is certainlythe quickest route to increasing yourinternational footprint. In the ChannelIslands, the merger that created MourantOzannes in 2010 was undoubtedly aheadline and that was followed up in2011 by the tie-up between GuernseysCollas Day and Crill Canavan in Jersey.Of course, to merge or not to merge is theperennial problem: do you risk increasingin size too quickly without theinfrastructure and resources to supportit? Or, do you choose organic growthknowing that critical mass may takesome time to come?

The expansionist aims of someoffshore law firms are certainly beingseen as an opportunity for players whohave a more organic approach to growth.

In the short term, where mergershave taken place we have identified atendency for the merged firm to take itseye off the business and businessdevelopment side of things, whileattention is focused on merger-relatedissues, says Barney Lee Barney Lee,head of the funds & investment servicesgroup in Applebys Guernsey office. Thishas given other firms in the marketopportunities to take advantage of theopportunity to pitch for and obtain workwhich might otherwise have beenexpected to be taken up by the mergedfirms.

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Where Appleby has merged it hasfollowed a more acquisitional path, forexample, its merger with Isle of Manheavyweight Dickinson Cruickshank inOctober 2009.

Do firms predict that offshore firmswill continue to join forces?

In a word, yes, says David Lamb,partner in Conyers Hong Kong office andco-chair of the firm. Consolidation in themarket is almost inevitable given thatthe search for growth and increasedprofitability is relentless.

The robustness of funds and litigationwork, as well as the strength of practiceareas that are specific niches for eachjurisdiction, are currently underpinningfirms geographical expansion and growthin headcount. But lawyers predict that aslew of legislative changes will also bedriving work over the coming year.

Fixing the bankIncreased scrutiny of the money marketsfollowing the 2008 financial crisis isevident through the world. However,existing suspicion of offshore systems hascombined with increasing appetite forregulation globally to place offshorefinancial hubs at the vanguard of publicdissatisfaction with the way financeindustries conduct themselves. As ageneral rule, the major offshore centersare responding to that increased scrutiny.

There is a new investment managerregime in BVI which sets a new standardof regulatory oversight of investmentmanagement activities in thatjurisdiction, further concreting itsreputation for pro-active and constructivefinancial services regulation, saysMourant Ozannes Duggan. In Caymanthere will be developments in theregulatory oversight of corporategovernance of hedge funds and in thebroader financial services sector during2013, and also some helpful amendmentsto the jurisdiction's limited partnershiplegislation. In Jersey the registration ofsecurity interests is being overhauled andthe new law is expected to come into forcein the second half of the year.

As Duggan explains, in addition to the

tightening of regulation in each offshorejurisdiction, clients with offshoreinterests cant neglect to adapt to offshorechanges.

Our clients are generally affected bychanges to both onshore and offshorelegal and regulatory regimes, he says.Onshore pressures in the form of FATCA,Dodd Frank and the AIFMD areheadline-grabbing issues with whichoffshore jurisdictions are grappling, andwhich will require responses from ourlegislators and regulators, but these arein train in each of our jurisdictions.

Alongside the regulatory changes,there are some interesting developmentsset to modernize existing legislation invarious jurisdictions.

In Guernsey, the eagerly-awaitedImage Rights legislation recently cameinto force and is expected to be asignificant driver of work going forward.

Image Rights legislation will establishimage rights as a new and separatebranch of intellectual property law andprovide clearly defined safeguards forcelebrities and sports personalitieslooking to further protect their image,says Carey Olsens Greenfield. Theground-breaking law will create an imagerights register enabling legal recognitionof a registered personality (i.e. theexclusive rights to the images associated

with or registered against thepersonality). The new law will also serveto enhance and compliment the otherintellectual property rights alreadyoffered in Guernsey.

Jersey has also updated its intellectualproperty regime in a move that isexpected to increase Jerseysattractiveness to creative businesses aswell as industries such as e-commerce.

The new law will replace andmodernize current copyright law inJersey and also makes provision for otherunregistered intellectual property rights,including database, publication anddesign rights, says Ohlsson.

Outside of the Channel Islands, theBVI has also seen a flurry of recentchanges.

One of the great attributes ofjurisdictions such as the BVI is that,owing to their size, they are able to befairly nimble in terms of amendingexisting legislation and enacting newlegislation, which therefore enables themto respond to both user demand and alsointernational regulatory developments,says Simon Schilder, corporate and fundspartner in Ogiers BVI office. Last yearsaw amendments to the BVI's flagshipstatute, the BVI Business Companies Act,2004, with amendments being introducedto enhance this statute and also theenactment of the Investment Business(Approved Managers) Regulations, 2012,so as to introduce a new investmentmanager licence designed to appeal tostart-up investment managers and alsoexisting small/ mid-size investmentmanagers.

As the rivalry between financialcenters increases, lawmakers are strivingto put their jurisdiction at the heart ofcommercial trends. Law firms withextensive networks are in the bestposition to offer their multinationalclients the most agnostic answer to theiroffshore needs. As proved during 2012,offshore firms are not complacent; asAsia, Africa and Latin America continueto open up to the possibilities provided byoffshore solutions, firms are focusing onmaking themselves relevant to newmarkets.

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AS is well documented, the Directive on AlternativeInvestment Fund Managers (Directive 2011/ 61/EUthe Directive or AIFMD) aims to provide for aninternal market for Alternative Investment FundManagers (AIFMs) within the EU. Unless a complete orpartial exemption is available however, the reach of theDirective extends not only to EU funds, but also, to alesser extent, to Non- EU funds managed by Non-EUManagers, marketing to EU investors1.

Non-EU AIFMs of Cayman funds marketing to EUinvestors will need to be aware therefore that, effective22 July 2013, the following provisions of the Directivewill apply to them:(a) Financial reporting requirements including

remuneration disclosure requirements;(b) Disclosure requirements to investors around the

fund and fund manager; and(c) Disclosure requirements to EU Regulators around

the fund and fund manager.

ARE YOU MARKETING TO EU INVESTORS?As defined in the Directive, the activity of marketing isany direct or indirect offering or placement at theinitiative of the AIMF or on behalf of the AIFM, of units orshares in a fund it manages to or with investorsdomiciled in the EU. The definition of marketing does notinclude reverse solicitation which should be consideredto be outside of the scope of the Directive.

Where Cayman funds are being marketed within theEU in line with the above, and subject to the individualrules of each Member State, non-EU AIFMs will bepermitted to continue to market such Cayman funds toProfessional Investors2 on a private placement basis in that Member Stateunder the Member States own private placement rules until at least 2018provided that reporting requirements are met and co-operation agreementsbetween the relevant countries are in place3.

WHAT ARE THE REPORTING REQUIREMENTS?The Directive imposes reporting requirements in respect of Annual Reports,Disclosure to Investors, and Reporting to Competent Authorities.

ANNUAL REPORTS AND REMUNERATION DISCLOSUREAn AIFM is required to produce, for each of the funds it markets in the EU,annual reports which must contain:(a) balance sheet/statement of assets and liabilities;(b) income and expenditure account for the financial year:(c) report on activities of the financial year;(d) any material changes during the financial year;(e) total amount of remuneration paid to AIFM staff for the financial year

(fixed and variable) number of beneficiaries, and any carried interest; and(f) the aggregate remuneration broken down by senior management and

staff of the AIFM whose actions have a material impact on risk profile ofthe AIF.The information concerning remuneration as contained in the annual

report must contain information on the total amount of remuneration for thefinancial year specifying:(a) the total remuneration of the entire staff of the AIFM, with an indication

of number of beneficiaries;(b) the total remuneration of those staff of the AIFM who in part or in full are

involved in the activities of the Cayman Fund with an indication of thenumber of beneficiaries; or

(c) the proportion of the total remuneration of the staff of the AIFMattributable to the Cayman Fund and an indication of the number ofbeneficiaries; and

(d) the carried interest paid by the Cayman Fund, where relevant.AIFMs must provide general information relating to the financial and non-

financial criteria of the remuneration policies and practices for relevantcategories of staff to enable investors to assess the incentives created. AIFMs

must disclose at least the information necessary to provide an understandingof the risk profile of the fund and the measures it adopts to avoid or manageconflicts of interest.

WHAT MUST BE MADE AVAILABLE TO INVESTORS?The minimum level of information to be made available to investors mustinclude, inter alia:(a) the investment strategy and objectives of the fund including how these

can be changed, use of leverage and collateral and asset reusearrangements;

(b) the identity of AIFM, and the funds depositary, auditor and other serviceproviders including prime broker and a description of their duties;

(c) any delegated investment management function and any delegation ofsafekeeping function;

(d) valuation procedures;(e) the funds liquidity risk management;(f) fees, charges and expenses;(g) how fair treatment of investors is ensured by the AIFM, details of any

preferential treatment, the type of investors who obtain such preferentialtreatment and their legal or economic links with the fund or AIFM;

(h) latest annual report;(i) the historical performance of the fund; and(j) how information required regarding special arrangements or leverage is

disclosed.AIFMs are also required to periodically disclose to investors the percentage

of fund assets which are subject to special arrangements due to their illiquidnature, total leverage employed and any right of use of collateral under suchleveraging arrangement, arrangements for managing liquidity and any changesto the maximum leverage that the AIFM may employ on behalf of the fund.

WHAT MUST BE REPORTED TO REGULATORS?AIFMs are required to provide certain information on a regular basis to thesupervisors of the Member State in which each Cayman Fund is marketed4

including:1. the principal markets and instruments traded by it on behalf of the Cayman

fund;2. the percentage of fund assets subject to special arrangements arising from

their illiquid nature, arrangements for managing liquidity, the riskmanagement systems employed, the current risk profile of the fund, themain categories of assets invested in, and the results of stress testsperformed in line with the Directive.

3. an annual report of the Cayman fund and for end of each quarter, onrequest, a list of all funds managed by the AIFM.

4. Where substantial leverage is employed, information on the overall level ofleverage employed.

WHAT SHOULD NON-EU AIFMS OF CAYMAN FUNDS DO NOW?The AIFMD states that Member States may impose stricter rules than thoseset out in the Directive on non-EU AIFMs in respect of the marketing of fundsin their territories. Whilst there is no evidence of Member States gold-platingthe AIFMD requirements in advance of the July implementation date, AIFMswill need to be prepared for the certainties that will apply on July 22.

AIFMs within scope of the AIFMD will therefore need to ensure thatsystems are in place to allow them to comply with reporting requirements intheir home jurisdiction, in the Cayman Islands, and in the EU Member State inwhich the fund is marketed.

Notes1 The impact of the AIFMD on EU Managers of Cayman Funds is outside the scope of this article.2 A Professional Investor is an investor which is considered a professional client, in accordance with Annex II of

Directive 2004/39/EC (the MiFID Directive). 3 We understand that CIMA is at an advanced state of negotiation with ESMA in this regard.4 Annex IV of the EU Commissions Regulation implementing the AIFMD contains templates for the filing of such information.

Authors:Matt Mulry at Dillon Eustace in CaymanDerbhil O'Riordan at Dillon Eustace in Cayman

www.dilloneustace.ie

Matt Mulry atDillon Eustace in Cayman

Derbhil O'Riordanat Dillon Eustace in Cayman

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