parallel fund structures luxembourg - cayman...introduction to parallel fund structures 4 cayman and...
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Parallel fund structuresLuxembourg - Cayman
We get straightto the point,managingcomplexity to getto the essentials.
ContentsIntroduction to parallel fundstructures 4Cayman and Luxembourg forparallel fund structures 6RAIF considerations and thefuture of parallel structures 8Choosing the right team 9Contact us 10
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Luxembourg - Cayman parallel fund structuresThe Luxembourg- Cayman parallel fund structure is increasingly a preferred product for sophisticated managers seeking to access European, US and Asian capital.
CarriedInterest
CarriedInterest
AIFM Fee
AIFM Agreement
Parallel Funds Structure
Asset 1 Asset 2
Holdco
Propco / Opco
GP S.à r.l.
*Authorised AIFM(Portfolio and Risk
Management / Marketing Passport)
Luxembourg SetupCayman Setup
Fund Sponsor
Non-EULPs
EU LPs
Carry vehicle
* Authorised Manager
Advisory or delegationagreement
Management oradvisory fee
Control
CarriedInterest
LuxFundSCSp
Cayman FundELP
Investment Manager / Advisor
GP
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Introduction to parallel fundstructuresWhat is a parallel fundstructure?Parallel funds co-invest and divestalongside the main fund, usuallyon a pro-rata basis per theircommitments, so a manager hastwo funds side by side which investand divest at the same time in acommon portfolio of assets. Theterms on which the parallel fundoperates are similar to the termsof the main fund, which meansthat the parallel fund has acommon investment policy andcommon asset targets to the mainfund. The differences betweenthem are mainly due to regulatoryor operational reasons.
Why establish a parallel fundstructure?
Internal tax/regulatory motivesCertain investors may haveinternal guidelines or may besubject to a tax and/or regulatoryregime, which restricts their abilityto invest in an offshore vehicle.
Greater investor reach/customised solutionsOffering a choice between onshoreand offshore jurisdictions is likelyto meet the needs of a greaterrange of investors and to providethem with a more customisedsolution.
Flexible solution/similarstrategyParallel funds give investors theability to choose the fund vehiclethat will best suit their particularrisk profile, regulatoryrequirements and tax appetitewhile ultimately remaininginvested in the same targetinvestments.
Segregation of jurisdiction-specific expensesIt is also possible to segregatecertain regulatory costs. Forinstance, costs associated with theAIFMD (Directive 2011/61/EU, theAlternative Investment FundManagers Directive) can berestricted to the Luxembourgparallel fund with no correlativefinancial impact on the non-EUmain fund.
ScaleA larger investment pool meansthat funds can more easily reachtheir target size and meet theirinvestment objectives faster.
Structure optimisationThe parallel fund approach makesit possible to create adhocstructures in each jurisdiction tomeet the needs of the specificinvestors targeted, rather thantrying to find a ‘one size fits all’structure.
How do the parallel structuresbalance?The size of a main fund and itsparallel funds may not be thesame.
For instance, the parallel fund maybe larger than the main fund and,in most cases, the AUM of thefunds will be aggregated todetermine the size of the overallstructure.
Investors in the main and parallelfunds may also (whereappropriate) be aggregated todetermine the voting rights ofinvestors in the structure. Themain fund and parallel fund areseparate legal entities, operated indifferent jurisdictions and yet arepart of the same global asset pool.
Very responsiveteam and valuableadvice.IFLR 2019
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Anne-Gaëlle DelabyePartner
Luxembourg’s investment vehicles toolbox and sponsor-friendly limited partnerships are among the reasons most often cited for the popularity of the country as a choice destination for fund domiciliation, making it by far Europe’s preferred jurisdiction for fund sponsors seeking to access European capital.
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Cayman and Luxembourg forparallel fund structuresWhy are the Cayman -Luxembourg parallel fundstructures generating suchstrong interest from US andAsian fund sponsors at thistime?It is all about creating a globaloffering: sponsors have to accountfor, and manage, the concerns ofvarious types of investors indifferent jurisdictions. Using one ormore parallel funds allows for eachto be co-managed and target thesame portfolio while meeting thedifferent requirements of investorsin different jurisdictions.
Luxembourg and Cayman are wellestablished funds jurisdictions,each dedicated to maintaining thehighest global governancestandards and, as such, are ofinterest to the institutionalinvestor world.
There are also a number ofsimilarities between the Caymanexempted limited partnership andthe Luxembourg special limitedpartnership, in particular theflexibility inherent to each, whichprovides added comfort for amanager looking to operate thefunds in parallel in the context offamiliarity with the product(s)under its purview and an ability toeasily align the funddocumentation.
What makes Caymanattractive?
Familiarity with US and Asianinvestors and sponsors, noreinvention of the wheelA sophisticated and deeplyentrenched fund ecosystemwhich makes this solutionefficient from a time to marketperspectiveTax neutralityFlexibility of structuring optionsand a government that isreactive to industry requirementsand embraces evolution withinthe industry
What makes Luxembourgattractive?
Luxembourg has historically beenEurope’s preferred jurisdiction forfund sponsors seeking to accessEuropean capitalSponsor-friendly limitedpartnership laws make thecountry a destination of choicefor fund domiciliationOffers a flexible and variedcorporate toolbox, providing aplethora of corporate/productoptions to sponsorsProvides sponsors access to theEuropean passport for marketingpurposes where the fundappoints an authorised AIFM(alternative investment fundmanager)In the Brexit context, a numberof Asian and US managers basedin the UK are now choosingLuxembourg as their Europeanbase
They are bright,commercial, veryresponsive.IFLR 2019
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Joanne HucklePartner
Parallel fund structures represent a growing trend in the funds industry because of the customized solutions they offer potential investors and the possibility for fund sponsors establishing sizeable funds to reach a much larger investor base for any given investment strategy.
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RAIF considerations and thefuture of parallel structuresWhat about the LuxembourgRAIF? What is it and how may itbenefit sponsors/investors?One notable feature of the suite ofLuxembourg fund products is aRAIF (reserved alternativeinvestment fund). Although oftenpresented as an unregulatedproduct, a RAIF is more accuratelydescribed as a ‘hybrid’ productsince it is indirectly regulated atthe level of its manager. A RAIF isrequired to appoint an authorisedAIFM, subject to supervision by itsEuropean supervisory authority.
A RAIF is particularly attractive forsponsors looking to set up anumbrella structure, as it offers thepossibility of having segregatedcompartments, making it a goodchoice of vehicle if a sponsorenvisages several investmentstrategies targeting different poolsof investors and/or differentportfolios of assets.
A RAIF can be used within aparallel fund structure.
What does the future look likefor parallel fund structures?Parallel fund structures represent agrowing trend in the fundsindustry because of thecustomised solutions they offerpotential investors and thepossibility for fund sponsorsestablishing sizeable funds toreach a much larger investor basefor any given investment strategy.
Turnkey solutions designed byleading law firms, such as Ogier,for fund sponsors looking toaccommodate the increasingdemands of professional andinstitutional investors, are beingdeveloped across the investmentfunds spectrum.
As they make it possible to meetthe needs of specific investors on atargeted basis, parallel fundsrepresent a true opportunity foragile fund sponsors who positionthemselves as early adopters ofthis new trend, enabling them toexpand their investor reach.
They are a verystrong firm andshowed a dynamicand commercialapproach which wasvery helpful. Theyreally know theirstuff.Chambers Global,Cayman Islands,Investment Funds,2018
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Choosing the right teamThe importance of choosing theright legal teamOne way to design the mostsuitable parallel structure for eachfund sponsor and its targetinvestors is to anticipate, discussand design all aspects of the fundstructure (ie voting rights,distribution waterfall, cost andexpense allocation, managementand advisory fees flow, carryvehicles if any, etc) before thelaunch of the fund and to providea clean mechanism for each in thefund formation documents.
Only the right legal team can helpsponsors ask the right questions atthe right time, anticipate potentialpitfalls and regulatory challengesbefore they materialise, and offerpractical solutions at each stageof the structuring process, thussignificantly reducing delays andcosts after launch.
Why choose Ogier as yourcounsel?As the only offshore law firm withwell-established offices in Caymanand Luxembourg, Ogier can counton a well-staffed team ofexperienced and highly qualifiedlawyers as part of its integratedGlobal Investment Funds PracticeGroup, who are ready to assist youin each jurisdiction in order todesign the structure best suited toyour needs, and to answer anyquestions you may have.
Sponsor clients of Ogier not onlybenefit from expert advice in eachdistinct jurisdiction, but also fromthe synergies created by Ogier’scross-jurisdictional approach, itsdeep expertise in parallel fundstructuring and its highly regardedcross-border legal services.
Ogier works with top-tier US andAsian law firms to providesophisticated tax advice to benefitsponsors, fund structures and theirunderlying investors.
Knowledgeableand experienced,with efficient andcommercial advice.Legal 500,Luxembourg,Investment Funds,2019
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Contact us
Luxembourg
Anne Gaëlle DelabyePartnerT +352 2712 2039M +352 621 982 [email protected]
Benoît RosePartnerT +352 2712 2065M +352 691 302 [email protected]
Walid ShararaManaging AssociateT +352 2712 2064M +352 691 002 [email protected]
Cayman Islands
Nick RogersPartnerT +1 345 815 1844M +1 345 525 [email protected]
Joanne HucklePartnerT +1 345 815 1895M +1 345 326 [email protected]
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