This cross-border legal guide provides a global comparison of fundamental legal, tax and regulatory considerations relating to the establishment and operation of investment funds in a range of jurisdictions where the industry is active. Each chapter is written by leading legal advisers from the relevant jurisdiction, providing information on the structures typically used, the regulatory framework for those funds, any significant operational requirements, how the funds may be marketed, a summary of the tax treatment for both the fund itself and investors, and customary or common terms.
This guide seeks to provide guidance on the key questions arising when industry participants are seeking to establish, operate, market and/or invest in an investment fund. Investment funds often operate across multiple jurisdictions. Those who understand the global landscape will be at a distinct commercial advantage, as well as minimising their risk of falling foul of local laws.
The key objectives when setting up an investment fund that are discussed in this guide include the following.
- Choice of domicile: there are a multitude of different legal structures available, and each jurisdiction applies its own legal and regulatory framework. Certain jurisdictions are traditionally utilised for certain strategies. However, ongoing legal developments in those jurisdictions, coupled with attractive investment funds regimes being introduced and/or modernised in the less obvious choices of jurisdictions seeking to compete with more established jurisdictions, means that the domicile used by a manager for its last fund may not be the best option for its next fund. We hope that this guide will help to provide you with the most up-to-date information on the typical forms of investment fund vehicles available in each jurisdiction to assist in making decisions relating to domicile.
- Asset class: there is also a wide variety of asset classes that are captured within the market, from traditional long-only equity funds through to leveraged buyout funds and hedge funds. Funds for different asset classes will have their own bespoke features and requirements. The industry develops in response to demand and now offers many ways for investors to customise their exposure to certain asset classes. Current trends, such as secondaries transactions, general partner-led fund restructurings, long-duration funds, capital call lines of credit and the focus on "retailisation" within the private funds market, demonstrate that the investment funds industry is flexible and accommodating to investors.
- Regulatory and tax considerations: since the 2007-2008 Global Financial Crisis, there have been various tax and regulatory developments in numerous jurisdictions that have affected the structuring of investment funds. Without doubt, the number of legal, tax and regulatory issues that have to be considered when establishing an investment fund has increased significantly, and the regulators and tax authorities across the world are introducing more complex reforms. If a fund manager does not comply with these requirements, the consequences can lead to significant fines or, in extreme cases, custodial sentences. It is, therefore, important to understand the applicable requirements in jurisdictions where the fund or manager is doing business.
- Investor base: another key objective when structuring an investment fund is ensuring that the fund is suitable for its proposed investors, whether that will be institutional investors or retail investors, or a combination of both. The investment funds industry is a global market, so funds will often be marketed to investors in multiple jurisdictions. Therefore, a fund needs to be flexible enough to be adapted to different groups of investors, it needs to be capable of being marketed in different jurisdictions, and it needs to be sufficiently familiar to investors. The manager and sponsor will, therefore, need to consider and take advice on the securities and marketing laws and regulations in the fund's target jurisdictions. In many jurisdictions, the marketing or distribution of an investment fund is restricted to certain categories of investor – eg, "professional" or "sophisticated" investors (ie, not to the public at large). Funds that are targeted at retail investors are, on the whole, subject to a higher level of regulatory scrutiny and operating restrictions.
About This Guide
To try and provide a framework for each chapter, we have focused on two categorisations of "investment funds": "alternative investment funds" and "retail funds". There will obviously be overlaps between these two categories, and some strategies or structures will not be adequately catered for (an obvious example being listed funds aimed at institutional investors). However, the suggested split is intended to be as follows.
- Alternative Investment Funds cover the non-traditional private fund strategies such as private equity, venture capital, infrastructure, alternative credit, hedge funds and real estate.
- Retail Funds cover the traditional mutual, authorised, regulated or registered funds that are commonly available to the public and, therefore, are not usually offered on a private placement basis. For this reason, retail funds have historically been more heavily regulated than other types of funds.
This guide not only sets out the information needed, but also provides a network of leading experts from independent law firms around the world who can be called upon to provide advice. The chapters in this guide have been written by some of the leading legal investment funds practitioners around the world: we thank each of them for contributing their invaluable and highly relevant industry comments.