Maples and Calder has issued a legal update on how the latest developments of the AIFM Directive will affect the Cayman Islands.
Although the authors of the report made it clear that until the final form of the Directive is adopted the outcome is too uncertain for Managers to make an informed decisions, the report also stated that according to the current stage of the Directive, both EU and non-EU fund managers based in the jurisdiction will be able to accept EU investors into their funds.
The EU has continually warned that investors based in the EU will not be able to invest in alternative investment vehicles based outside the EU, and that third-party funds would have to relocate to the EU or at the very least pass stringent guidelines in order to market funds to EU investors.
Jean-Paul Gauzes, the rapporteur for the EU on the AIFM Directive, has previously stated that it was unclear whether the Cayman Islands would be placed on a black list of countries that would be banned from marketing to EU investors.
However according to the latest drafts of the Directive from the European Parliament and the Council of the European Union, Maples and Calder expect that EU and no-EU fund managers will be able to distribute their Cayman Island domiciled funds using the private placement regime that applies in each EU member state. National private placement regimes are the national rules for the marketing of non-EU funds in the EU.
Speaking to GlobalCustodian.com, Paul Govier, Joint-Managing Partner, Maples & Calder London and co-author of the legal update, said: Based on the rules that proposed so far, we are confident that EU investors will still be able to access Cayman Island funds, despite speculation in the press that may not be the case.
There has also been speculation that regulation will encourage fund managers to redomicile to EU regulated jurisdictions. Fund manager Marshall Wace recently re-domiciled its Cayman-based funds to Dublin. The firm declined to comment on why the move was being made, however an industry source said that investor demand and the desire to pre-empt the Directive were likely to be the primary reasons.
Although Marshall Wace are a client of Maples and Calder in both the Cayman Islands and Dublin, Govier said: Lots of clients are considering what might happen in a worst case scenario regarding relocation, but only one of our clients have left the Cayman Islands so far, for their own reasons. It is expensive and it doesnt achieve anything, as the Cayman Islands are a well regulated jurisdiction which has found favour with investors and managers alike for over two decades.
As the Directive nears its final phase (the European Parliament’s Committee for Monetary and Economic Affairs is set to vote on the Directive on June 15), the Cayman Islands has been particularly vocal on the future legislation. Anthony Travers, chairman of Cayman Finance, issued a letter to Jean-Paul Gauzes in May pressing the case for the jurisdiction to be covered by the AIFM Directive., highlighting that Cayman laws, such as those covering money laundering and tax reporting, are superior to many EU member states.
The directive is still far too uncertain to make any decision on fund relocation at this stage, and we are confident that once it becomes more certain, the Cayman Islands will be able to comply with any rules that are laid down, Govier concluded.
The Maples and Calder update can be found here
The Cayman Finance Letter can be found here