GAIM Ops Cayman 2019

Walkers will once again be a headline sponsor of the 2019 GAIM Ops Cayman conference.

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Walkers Launches Compliance Services Offering

Walkers Compliance complements Walkers' legal, corporate and fiduciary services to deliver a one-stop-shop for clients looking to use the Cayman Islands jurisdiction for their business needs.

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Brexit

Following the result in the United Kingdom's EU referendum, Walkers has created a Brexit page dedicated to providing our clients relevant information about the jurisdictions in which we practise.

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Walkers is a leading international law firm. We advise on the laws of Bermuda*, the British Virgin Islands, the Cayman Islands, Guernsey, Ireland and Jersey.
GlobalMap Oct2018
Promotions 2018

Walkers' Promotions Highlight Growth of Global Firm

We are pleased to announce that 8 attorneys across our 10 global offices have been invited to join the partnership. In addition, 18 associates have been promoted to senior counsel, or local equivalent.

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Walkers Continues its Expansion in the Channel Islands

Walkers' expansion in the Channel Islands is continuing at a rapid pace, with the number of lawyers in its Guernsey office doubling since July 2018, and the number of lawyers in its Jersey office increasing by over 60% in the same time period.

The expansion is being spearheaded by a three person management team comprising of Fraser Hern (Head of the Channel Islands), Jonathan Heaney (Managing Partner of the Jersey Office) and Louise Hall (Managing Partner of the Guernsey Office). Fraser, an insolvency, restructuring and litigation specialist who has spent the past 12 years in Walkers' Hong Kong and Singapore office, and who played a pivotal role in the expansion of those offices, says that the expansion of the Channel Islands offering is only just in its infancy.

Walkers' Head of Channel Islands Fraser Hern said, "For many years our firm has been focussed on establishing a market leading practice in the Caribbean, Asia and the Middle East. That growth continues to this day, but we also recognise the value of establishing a market leading position in the Channel Islands to complement the rest of our business and to be able to provide clients with the benefit of our collective Tier 1 legal expertise in all of the jurisdictions in which we operate. With approximately 800 staff worldwide we are one of the largest, if not the largest, offshore law firms in the world, and have a unique global platform from which our clients and staff alike can benefit".

Walkers see expansion occurring across its Jersey and Guernsey businesses in tandem. Jersey Managing Partner Jonathan Heaney, a specialist in investment funds and corporate law, recognises the opportunities within the Jersey market and within his own area of specialism, comments "We have a truly enviable investment funds client base, and our expansion across the Channel Islands is occurring at the same time as we are expanding our investment funds practices in our other European offices. We now have approximately 250 people across our European business, and the work we do for our global funds client base is a critical part of our success".

Louise Hall, Walkers' Guernsey Managing Partner and one of the pre-eminent employment lawyers in Guernsey, sees the expansion as being an exciting second phase in the firm's growth story in Guernsey, states, "We have participated in and enjoyed a tremendous journey since the merger between AO Hall and Walkers in 2016. This has seen the Guernsey firm double in size with the immediate period following the merger being focussed on integrating with the Walkers network, and the past six months heralding a second phase with huge growth. Whilst the firm doubling in size in this very short period may seem significant, in the context of the opportunities that exists in the firm and as a consequence of what is an unrivalled global platform for an offshore firm, the growth to date is just the beginning. On a daily basis we are working on matters emanating not only from our core domestic client base and our referral network in London, we are also working on a very significant range of matters that originate out of our Irish, Jersey, Dubai, Singapore, Hong Kong, Cayman, BVI and Bermuda offices and/or network. We are just scratching the surface and the reaction from clients who have been asking Walkers to establish a Guernsey offering for many years has been outstanding".

Walkers' ambition in the region is evident from the recent hires that have been made, as well as the infrastructure changes that are underway.

Walkers' Head of Channel Islands Fraser Hern confirmed that, "Walkers is very committed to the region, to being the leading Channel Islands law firm, and to providing real time tier one multi-jurisdictional legal advice to our clients. Our dominant Caribbean practices, coupled with an unrivalled client base across the Middle East and the Far East, an ever increasing footprint in London, and first class entrepreneurial lawyers in the Channel Islands give us a tremendous advantage. We are keen to make the most of the opportunity."

Walkers Jersey Sponsors 'What’s Her Street Story'

Walkers Jersey is delighted to announce it has become the corporate sponsor to 'What’s Her Street Story', an extension of the existing 'What's Your Street's Story' project.

Starting in January 2019, What's Her Street Story will identify Jersey's most celebrated women who lived, worked and changed their communities. This project coincides with the 100th anniversary of suffrage in Jersey and will celebrate those important female historical figures. The series will host a monthly lecture at the Jersey Archives, with a maximum attendance of 80. Walkers Jersey is delighted to work on this important project with Jersey Heritage.

Partner Alexandra Corner said: “Walkers has a long history of investing in female staff and raising awareness of gender diversity. Our firm is headed up by a female Global Managing Partner and 65% of staff across our ten offices are female. We also have a number of female partners and senior staff in the Channel Islands, who are each recognised specialists in their fields."

With the centenary of the right to vote in Jersey, we feel that supporting Jersey Heritage’s 'What's Her Street Story?' programme is a fantastic opportunity to raise awareness, promote gender diversity and make a contribution to celebrating the exceptional women of Jersey.

 

For more information, click here. 

Walkers Fundamentals Private Equity Trends - Part 3

From our vantage point as advisers to many of the world’s top investment fund managers and financial institutions, broad market forces flow through to our instructions, and ultimately drive many of the terms of the funds we advise.

In this four-part series we look at the current themes we have noticed in the investment funds market. Parts one and two focus on Hedge Funds and parts three and four explore Private Equity.

All data, unless referenced, is taken from Walkers' in-house investment funds survey.

PART 3 - PRIVATE EQUITY 

The appetite of investors for allocating capital to closed-ended funds across a wide spectrum of managers, asset classes and geographies has continued unabated in 2018. The heightened activity of 2017 has persisted, with the headline grabbing, billion dollar-plus fund launches complemented by a steady flow of smaller funds, often offering more esoteric strategies. Our data suggest a willingness of investors and managers to work together to maximise realisation value of fund investments, with performance allocations and fees also remaining a key topic of negotiation. All in all, the closed-ended market remains very active, diverse and keen to take advantage of the various upsides offered by structuring through Cayman.

FUND SIZES AND STRUCTURES

Activity has remained strong in the >$1 billion fund space, reflecting the continued ability of established managers to raise significant amounts and the attraction to investors of participating in funds with strong track records, often offering access to high profile underlying investments usually having billion dollar-plus price tags. Perhaps even more encouragingly, the market for sub-$500 million fund raises remains robust, with a significant number of managers successfully closing smaller products.

Fund Target Size.png

Twelve months remains the most common fund raising period, albeit we have seen general partners going out to their limited partners to seek consent to extend such periods to 18 or 24 months. There has been a slight increase in the percentage of funds willing to accept a hard cap on commitments, with some investors keen to ensure they remain significant players within the LP base. The majority of funds, however, provide target sizes but remain unfettered by any binding restrictions.

Managers are continuing to consider compliance with regulatory obligations, such as those pertaining to automatic exchange of information and anti-money laundering. The market has developed quickly to assist, with an ever increasing number of service providers now offering tailored, cost-effective solutions to, in particular, small and middle-market managers. The ability to efficiently outsource aspects of regulatory compliance allows managers to focus on raising capital and sourcing investments.

Fund Target Size 2018.png.jpg

The vast majority of Cayman closed-ended funds remain structured as exempted limited partnerships (“ELPs”): we have seen a handful of closed-ended funds structured as exempted companies to satisfy specific investor or regulatory concerns, but ELPs clearly remain the vehicle of choice. General partner entities are most typically Cayman exempted companies, with a fairly even split of ELPs, foreign companies and foreign partnerships (typically Delaware LLCs and limited partnerships) thereafter. Cayman LLCs, newly launched in 2016, are also growing in popularity as general partner entities, with certain managers who had historically used Cayman exempted companies transitioning to Cayman LLCs for future structures and, on occasion, within existing structures.

FUND STRATEGIES

The market for credit and direct-lending funds remains positive, with downstream demand for alternative lending solutions continuing to create an attractive investment narrative for such strategies. Buyout funds have also continued to be active in the capital-raising space as, despite a slight dip from prior years, have funds focussing on hard assets, such as infrastructure and real estate. Early signs are that energy is beginning to rally, with fund raising activity in this area having been relatively quiet. Within the energy sector some of the movement has been in the renewables space, a trend which we expect to continue to grow.

Given the increase in the number of tech funds launched this year, it is not a surprise that we are seeing increased interest in the establishment of funds focusing on the blockchain and digital assets space. Unlike the hedge funds established to invest in initial coin offerings and the trading of cryptocurrencies, these funds typically have a venture capital strategy focusing on blockchain projects and enterprise solutions with investments in start-ups and incubator programmes.

Fund Strategy.png

One of the consequences of the success of smaller fund launches has been certain, more focussed, strategies coming to market: we saw buyout funds with investment strategies concentrating on specialised fields such as media, food/agribusiness and sports entertainment/marketing successfully close. We have also seen funds with a significant social element, including the launch of a for-profit health impact investment fund with a primary purpose to promote a charitable cause, namely improving the lives of low-resource, underserved populations in developing countries (initially focusing on India and Sub-Saharan Africa), a project on which Walkers lawyers worked on a pro bono basis. Our team is also seeing more early stage interest in the establishment of other such social impact funds, including a clean energy fund structure involving multiple jurisdictions, and we hope to assist more managers to successful first closings over the coming months.

Walkers Fundamentals Private Equity Trends - Part 4

From our vantage point as advisers to many of the world’s top investment fund managers and financial institutions, broad market forces flow through to our instructions, and ultimately drive many of the terms of the funds we advise.

In this four-part series we look at the current themes we have noticed in the investment funds market. Parts one and two focus on Hedge Funds and parts three and four explore Private Equity.

All data, unless referenced, is taken from Walkers' in-house investment funds survey.

PART 4 - PRIVATE EQUITY 

FUND GEOGRAPHIES

North America remains the most significant target area for investments. Global geographical strategies also remain popular, as managers focus on specific industries and sectors rather than the home jurisdiction of potential acquisitions.

Asia focussed funds remain extremely popular, so much so that Asia seems to be quickly shedding its emerging markets tag. Latin America has had a slower year but there are signs of activity with respect to Africa focussed funds for US managers. European strategies by contrast remain less active, as uncertainty caused by events such as the Brexit vote remains a tangible concern.

Geographies.png

FUND DURATION

One trend that has been evident from the data is a lengthening of fund terms: we have been seeing this reflected in term extension provisions, which provide for a greater number of additional extension periods, with lower levels of consent. This year we have also seen the most common initial, pre-extension, term switch up from 5-7 years to 7-10 years (however, it should be noted that Asia-focussed funds continue to have initial term lengths of around five years).

Fund Duration.png

This change in the most prevalent term length is in addition to the continuing ability of general partners, with varying levels of consent, to extend the terms of their funds, typically for two one-year periods, but also for three or four one-year periods, or even for an indefinite number of years.

Following naturally from the ability to indefinitely extend terms, and possibly in part inspired by the success of Berkshire Hathaway, we have seen permanent capital private equity funds make it to market which are long-dated to allow managers to pursue and seek to make truly transformative changes in their underlying portfolio companies, with the aim of maximising value for investors on an exit.

Extension Periods.png

Investors appear to be more willing to work with managers as their trusted advisors to hold investments for lengthier durations. This collaborative approach is also reflected in a widening of the investment periods of funds.

It is well published that there is still significant dry powder in the market, and finding and executing high quality investments in such a competitive arena remains a challenge. Investors are allowing managers longer to find and close the kinds of investments which will generate the best returns for their portfolios, notwithstanding that such returns may be a few years later than has traditionally been the case.

Investment Period.png

FEES

The “two and twenty” fee model has been the accepted norm for a significant time. However, managers, especially those raising their first funds, face increasing fee sensitivity from investors and concessions are now often reflected in side letter rebates: indeed for certain funds, carry allocations are calculated on an investor by investor basis, with rates set out solely in side letters rather than in the partnership agreement. Our data suggest, however, that managers and investors are working on slightly more innovative approaches to performance allocations.

Private Equity Carry Period.png

While 20% remains the most common carried interest entitlement percentage, there is some activity on either side of that mark. We have disregarded Cayman funds showing zero carry: this typically reflects their place in fund structures where carry is taken at a different level, often a master fund domiciled outside of Cayman. Interestingly, we have seen an increase in rates which are lower than 20%. The most obvious explanation at face value is that this is reflective of fee pressure on managers, but a closer dive into the data and the fund documents suggest that a little more creativity is in play.

While 8% remains the most usual hurdle rate, there has been an increase in alternative preferred return requirements: looking at the underlying partnership agreements, lower hurdle rates are typically matched by a lower carried interest entitlement. Similarly, we have seen greater activity in 20% plus percentages, however these are tracked by higher preferred returns, delaying the point at which carry entitlements arise but promising greater rewards if the fund generates the higher returns.

Preferred Return Rate.png

Management fees have remained at around the 2% mark, albeit with some deviation downwards.

Management Fees During Investment Period.png

In general, therefore, while “two and twenty” is still king, we are seeing some flexibility in the market, particularly in assessing performance rewards. This demonstrates the continued willingness of managers and investors to collaborate in creating tailored fund structures designed to satisfy as many competing interests as practicable.

Walkers Fundamentals Hedge Fund Trends - Part 2

HEDGE FUNDS - PART 2  

From our vantage point as advisers to many of the world’s top investment fund managers and financial institutions, broad market forces flow through to our instructions, and ultimately drive many of the terms of the funds we advise.

In this four-part series we look at the current themes we have noticed in the investment funds market. Parts one and two focus on Hedge Funds and parts three and four explore Private Equity.

All data, unless referenced, is taken from Walkers' in-house investment funds survey.


LOCKED UP FOR LONGER
 
Although the percentage of funds using a lock-up is broadly consistent with our prior surveys (about one third of funds surveyed use a lock-up of some sort), the way funds used lock-ups in 2018 has evolved. Funds are now locking up their investors for longer: over half the funds that were using lock-ups are now locking their investors up for eighteen months or more (compared with 39% in 2017).

The nature of the lock-up has changed this year too. In prior surveys, the split between funds employing ‘hard’ lock-ups (where the lock-up prohibits redemption during its term) has been broadly in-line with those employing ‘soft’ lock-ups (where early redemptions are permitted, but subject to an early redemption fee for the benefit of the fund). This year, however, hard lock-ups were more than twice as common as soft lock-ups.

As industry data shows, the average hedge fund investor, measured by dollars invested, becomes more institutional each year. A classic side letter trade of recent years has involved an incoming investor agreeing to be locked up (sometimes even where the fund’s base terms do not provide for a lock-up) in return for lower fees. As most initial investors in a fund, particularly the larger anchor institutional investors, plan on committing for several years, and most managers in the early years require stability of the capital base while they build a track record, this has been a mutually beneficial arrangement.

In a similar vein, we have seen a small uptick (25%, up from 20%) in the percentage of funds employing a gate to provide a mechanism to smooth the impact of significant redemption activity. While too early to observe any meaningful trend, as a proxy for managers’ expectations of future redemptions, it is a statistic we will keep under review.

Lock-Up Periods.png

GOVERNANCE AND CONTROLS

 

Last year, one of the departures from the established trend was a small but notable decline in the number of funds, including one or more independent directors on their board. At the time, we cautioned against reading too much into a single year’s data, and promised to revisit the question this year. While independent representation on boards has risen slightly (76%, up from 67% last year), this still represents a smaller percentage than we saw in our pre-2017 surveys. For funds using independent boards, majority independence remains dominant (nearly 90%), and most funds (over 70%) select independent directors from different providers. These remain broadly consistent with prior years’ results, and reflect the institutional consensus regarding appropriate governance.

These statistics reflect the significant task facing many of our clients in selecting an appropriate governance framework for their fund, and then finding appropriate individuals to fill the roles. We work with virtually all of the professional directors, and are well placed to help clients work through these issues.

We have also seen a significant increase in the number of funds employing administrators that are based in the Cayman Islands (43%, up from 27% last year). To a degree, this may simply reflect administrators’ own internal preferences in running Cayman funds from their Cayman offices. It may also reflect clients’ preferences for administrators who are most familiar with the Cayman Islands anti-money laundering regime, which was updated in 2018, and who are able to offer the required anti-money laundering officers. We shall keep this under review in future surveys.

Board Composition.png

WHAT TO LOOK FOR IN 2019

As so much in the industry flows from performance, whether or not the last two years’ positive returns can be extended remains the key question. It has been a busy year for new fund launches in 2018, both for start-ups and institutions alike. Beyond the new registrations captured by our surveys, Walkers has advised on a wide range of restructurings of existing funds in anticipation of renewed activity and investor demand.

That activity may in part come from the growth of crypto-related funds and the development of artificial intelligence, machine learning and big data to analyse and invest in markets. We expect to see more in the crypto custody space, with progress being made towards a regulated solution to the custody of crypto assets. This is expected to ease a key constraint to institutional participation in crypto funds. Another area to watch with interest is the growing trade tensions between the US and China. With both sides expected to increase the number of tariffs and other protectionist measures in the near term, any resulting market volatility may lead to opportunities for investors and managers alike.

Investors continue to look at positive societal outcomes when analysing investment opportunities. Institutional managers now routinely incorporate environmental, social and governance (ESG) principles into their investment policies. We expect this trend to continue.

Finally, there is a growing consensus among industry commentary that the last decade of relative market stability (in the principal equity markets at least) and low interest rates, may become increasingly vulnerable to economic and political risks. If so, and volatility increases, hedge funds should be well placed to put into practice the strategies that have often been frustrated by strong and stable equity markets and low interest rates. To a degree, some of the trends and themes observed in this year’s data may already reflect forward planning by managers in contemplation of these possibilities.

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