Quarterly Newsletter – Q3 2009
Posted on 6 Oct 2009
Robert Mirsky Joins Laven Advisors as Managing Director
Laven Advisors has appointed Robert Mirsky as Managing Director. He will be responsible for the development of a new alternative investment platform based on Laven’s strong knowledge of operational risks. The continuing development of this service, aimed at family offices, institutional investors and wealth managers, is anchored in our unique approach to fund selection based on thorough due diligence and understanding of investment processes as well as front to back office risk controls and compliance. Robert will help Laven expand the company’s range of investor services, which includes operational due diligence and risk and performance monitoring.
A U.S.-trained lawyer, Robert joins from Ernst & Young UK where he was a Partner and co-leader of the European hedge fund practice. Prior to this, he was head of Deloitte’s UK hedge fund practice. Having worked in London, New York, Washington D.C. and the Cayman Islands, Robert has strong international experience, and specialises in the structuring and ongoing operational activities of hedge funds. He has considerable experience in trading platforms for both off-shore and on-shore hedge funds and has handled the transactional and tax aspects of cross-border financings, financial products, international mergers & acquisitions, insurance and project financings.
Jérôme de Lavenère Lussan, CEO and Founder of Laven Partners says: “We have built a strong reputation for providing our clients with advice on complex financial issues. Robert has over ten years experience in advising financial service companies, and a wealth of technical expertise that will help us meet the growing demand for our services. It is an exciting time and we are very pleased to have Robert join us.”
Robert Mirsky says: “Laven offers a strong combination of technical expertise and innovation. In an industry like ours, it takes a dynamic firm like Laven to respond to the changing needs of our manager and investor client base.”
Laven Legal Services asks whether it is time for hedge fund managers to contemplate moving their funds to or setting up their new funds in Luxembourg?
An increasing number of off-shore funds are considering a move to the EU to benefit from the strong on-shore legal and regulatory environment. The impetus behind this move comes not just from managers, but also from investors who see the EU as a safer place in which to invest. Because of its legal and regulatory framework and connection to the financial services industry, Luxembourg has become the jurisdiction of choice for a large majority of European funds.
On 22 October Laven Legal Services will be co-hosting a seminar on ‘Re-domiciliation to Luxembourg’ with PricewaterhouseCoopers. This intensive and interactive breakfast seminar aims to discuss the procedures, tax considerations and costs of re-domiciliation to Luxembourg.
The law firm has also written a memorandum commenting on the Specialised Investment Funds (SIF) law, which we believe gives further reasons for hedge fund managers to contemplate moving their funds to or setting up their new funds in Luxembourg.
SIF funds bear similarity to funds set up in the Cayman Islands. Able to start their activity with pending CSSF approval, the funds provide an ideal investment vehicle which offers great flexibility regarding eligible assets. Similarly amenable in nature, the SIF law does not specify any detailed investment restrictions or leverage rules except as to the principle of risk diversification, which, in itself, is considered flexible as investors are considered to be well informed.
To read more about SIF’s and the SIF law, please visit Laven Legal Services at http://www.lavenlegal.com.
Laven Legal Services will also shortly be publishing a similar note on UCITS III specifically for alternative strategies in view of high demand from its international client base.
Alexandra Tzalla, Solicitor and Avocat à Luxembourg exerçant sous le titre d’origine de Solicitor with Laven Legal Services, notes that: “it is time to consider how an off-shore fund should integrate into the EU legal and regulatory framework and possibly obtain a higher degree of regulation, as investors are facing an enormous pressure to address concerns about compliance. At Laven Legal Services our proactive and detailed approach has helped complex funds fit the Luxembourg regulatory environment. In particular, the ability to bridge the Anglo-Saxon model with the continental approach means that we are best placed to understand and explain complex projects in good time”.
For further information on our SIF, UCIT III and passporting services, please speak to your contact at Laven Legal Services.
Laven Partners Provides Updates on EC Directive
Fully aware of the increasing need for investors to keep up-to-date on key developments in the alternative investment industry, Laven Partners has been sending monthly updates on the European Commission’s draft Alternative Investment Fund Managers (AIFM) Directive.
If it goes ahead unchanged, the Directive, which aims to “create a comprehensive and effective regulatory and supervisory framework for AIFMs at the European level” would limit the amount of leverage available for hedge funds and other alternative investment funds, impose new reporting requirements, and force European funds to use EU-domiciled banks.
Sweden, which currently holds the presidency of the EU, has called for a number of modifications to be made to the Directive amongst which were the scope of the definition of funds covered, calculations of leverage and the way in which the new rules would react with existing regulations.
Earlier this month, Mayor of London Boris Johnson joined MEPs in Brussels, where he voiced concerns over the likely effects that the Directive would have over London as tighter regulation would without a doubt brand the United Kingdom and a number of its European counterparts as unfavourable locations for hedge funds. London, the hub of Europe’s alternative investment industry, would face potential losses of over 42,000 jobs, whilst the rest of the nation would suffer by losing out on the estimated £3 billion in tax revenues brought in by the alternative investment sector.
Whilst Laven Partners believes that the new Directive raises some useful issues such as certain disclosure requirements that should help improve trust in the industry and bring in much needed transparency, particularly for investors, it is also aware of the danger that regulatory developments could weaken London as a financial centre and lessen the FSA’s influence. We would like to see the UK level out with neighbors such as France and Germany, where on-shore hedge fund laws are in place, and for tax laws enabling the establishment of UK-based alternative funds to be introduced, creating jobs and innovation.
From the point of view of what our clients want there is no doubt that our Luxembourg office has been very active setting up local UCIT III and unregulated funds as the industry sees the need to move to a recognised European base. Our corresponding firm in Geneva has also experienced an increase in demand for local structuring from foreigners. The odds are that anyone in Europe will be fighting for a slice of the alternative investment industry that seems to be seeping out of the UK.
Laven Partners Probes Cameron
Laven Partners spoke to David Cameron at the Financial Times 4th Annual Leadership of Pensions regarding the 50% higher band tax rate, what this could potentially mean for the hedge fund industry and other entrepreneurial financial groups, and further how this could affect the UK economy as a whole in terms of loss of revenues for the Government at a time of serious deficit.
Mr. Cameron concurred that the upper band income tax rate was a serious issue, but admitted that until the economy recovers from what he noted was a 14% deficit, a Conservative Government would not be able to make changes to the new tax rate. Mr. Cameron stated that this issue would merely have to “join the queue” of reforms that would need to be made in order to straighten out many of the other tax increases that have been brought in by the current Government.
Other points covered by Mr. Cameron included his comments regarding the changes that should be expected of the FSA, more specifically that we should expect to see control shift back to the Bank of England.
Mr. Cameron commented that the recent failure in the financial system was both “intellectual and institutional” with no clear line of responsibility between the Bank of England, the FSA and the Treasury. As he put it: “there was no one at the party to take the punch ball away”.
Jerome Lussan says: “it is interesting to note that the potential future prime minister does not like the 50% tax rate, but that he will not be able to do anything about it. This is true politically, but when we know that a departure of some of the leading managers could cost the UK up to GBP5bn of tax revenues, as noted in the FT, it would be good to find ways to incentivise them to stay in the UK.”
Changes to Regulations Affecting BVI Investment Advisors
The British Virgin Islands, one of the most popular off-shore jurisdictions, has been put under further pressure to make their regulatory regime stricter, resulting in a draft Securities and Investment Business Act which is currently under review. In accordance with this act, expected to come into force at the beginning of 2010, all BVI-based investment advisors would require authorisation from the Financial Services Commission.
This would entail all existing investment advisors going through the administrative process of applying for a license within a specified time period and inevitably, incurring extra costs. As is the case with BVI-based management companies, there will be on-going regulatory requirements, and the regulator will be introducing a Regulatory Code to be adhered to. Amongst other things, this code will incorporate Principles for Business, Fit and Proper Criteria, Corporate Governance Framework and Compliance Policies.
This newly drafted legislative act and the proposed regulations are the cause of great concern as regulatory advantages associated with providing investment advisory services in the BVI come under attack, working in the favour of competitors in the Cayman Islands, where investment advisors are exempt from regulation. On the other hand this proves the efforts of the BVI to stand out in the region as a jurisdiction imposing proper controls.
This may impact the way funds and management companies are structured and the choice of jurisdiction in a fast changing world.
Laven Partners Appears on Bloomberg
In July, Laven Partners was invited to appear on Bloomberg TV to comment on the sentencing of Bernard Madoff, the worst fraud of recent memory affecting the hedge fund industry. Jerome Lussan described the Madoff saga as being “symptomatic of the lack of due diligence notably in funds of funds and advisory firms in the world.” A great concern for Laven Partners is that losses resulting from the Madoff scandal may cause a dramatic loss of confidence in the private banking industry, on which people have always relied as “something conservative that protects assets”.
Laven Partners acknowledges the fact that due diligence is extremely difficult to carry out in the hedge fund sector and that there has been a certain laxness in the industry where people felt they could just rely on the manager’s assurances rather than proper analysis. To view the Bloomberg TV interview, please visit Laven Partners at http://www.lavenpartners.com.
Laven Partners Speaks at Due Diligence for Fund of Funds and Hedge Funds Conference
Both Jerome Lussan and Max Ferri were recently invited to speak at the Due Diligence for Fund of Funds and Hedge Funds conference, which addressed ‘Meeting Investor Demands post Madoff’.
Jerome Lussan’s presentation was on ‘The Value of Operational Due Diligence’ when investing in hedge funds, and kicked off with a study of Ethical Finance, exploring the increasing popularity of independent service providers, examples of forgotten lessons, such as the Bayou Group and Lakeshore CTA, the increasing pressure on regulators to do things well, and the resulting draft AIFM Directive.
Laven Partners’ background in fund operations, compliance, law and investments has allowed for a unique approach to due diligence. Our Independent Process of Operational Due Diligence (IPODD) focuses on operational risk and covers both qualitative and quantitative due diligence, reviewing single manager strategies or funds or hedge funds, dependent on the needs of the individual investor.
Laven has experienced an increase in demand for individualised and exclusive due diligence services, the details and depth of which cannot be matched elsewhere. Our services are divided into two different packages: the IPODD Report and the Redflag Database. The IPODD Report is uniquely designed to help our clients invest with the transparency they should expect and the keen insight that comes from years of experience in the hedge fund industry. The Redflag Database is a fully scoped review of funds helping managers and investors identify those funds that provide a minimum risk adjusted return and have a proven record of performance accompanied by solid business models and operations. Our Redflag Database is offered based on an annual license basis and provides a wealth of monitoring tools and statistics to choose the right funds for any portfolio.
For further information on our due diligence services, please speak to your contact at Laven Partners.