Fund structuring: responding to users’ needs

With economic headwinds affecting some performance, investors want to see their interests aligned with the managers. Not only have Asian managers been pressurised to reduce periodic management and performance fees, but they are also having to come up with innovative ways to reduce other costs, including initial set-up costs and ongoing fund expenses.

This is leading to the creation of more focused investment structures – matching of investor liquidity with fund liquidity. For Asian hedge funds, this means limiting the use of hard lock-ups; setting typical fund level and/or investor level gates thresholds at 20% or 25%; and providing quarterly or monthly liquidity with 30 to 60-day notice periods.

SEGREGATED PORTFOLIO COMPANIES

With a view to establishing fund structures that more closely align the interests of managers and investors, Asian managers have been increasingly drawn to the advantages of segregated portfolio structures. Introduced in public legislation in Bermuda in 2001 as segregated accounts companies, and in 2002 for British Virgin Islands (BVI) and Cayman Islands as segregated portfolio companies (‘segregated companies’), it is possible to segregate assets and liabilities into distinct pools (‘portfolios’) without the expense of incorporating separate companies. In addition, segregated companies can be used to provide for single-investor portfolios tailored to meet that investor’s specific needs, whether as to permitted investments, fees, liquidity or otherwise, without having to disclose the details to other investors.

 

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This article was originally published in Legal Business, November 2016.