Structuring Private Equity Offshore- Still A Great Idea!

Andrew Boyce

Partner, Carey Olsen

Are we there yet? – Where is "Offshore" Exactly?

• The current use of the term “offshore” is anywhere that “you” are not and depends to some extent in what is trying to be achieved (e.g. either simplified tax swapping by way of jurisdiction shopping or proper efficient and flexible structuring)

• This has led to the creation of several new jurisdictions being put forward as offshore locations as well as the ranking or establishment of “tiers” amongst the offshore locations

• Essentially “offshore” can be split into 2 groups:

- Traditional jurisdictions (e.g. Guernsey, Jersey, Cayman, Bermuda)

- New “offshore” world (Antigua, St Lucia, Seychelles)

Why are we here? – Benefits of Structuring Offshore

• Promoters generally consider structuring offshore from 2 perspectives:

– Quick face lift (resulting in “offshore” being anywhere that gives any advantage over where we are now); or

– Core structuring (the advantages of being “offshore” run through the structure)

• Both have a place and usefulness but the changing financial landscape increasingly makes superficial changes of little real benefit to either promoter or investor

Why are we here? – Benefits of Structuring Offshore

• Quick face lift/headline structuring

- tax swapping: doesn’t cater for all or the ultimate potential investors

- deregulation: changing face of financial services sees regulation as a benefit

- jurisdiction badge: attracts new investors at the risk of alienating the old

• Core structuring

- tax efficiency: through all levels of the structure to end investor

- regulation: provides the comfort and compatibility expected of all financial destinations but with a practical approach

- flexible vehicles: allows the structure to evolve with its market

What does it look like? – Types of Vehicles and Structuring Options

• A range of vehicle options:

- limited partnerships

- protected cell companies

- unit trusts

- incorporated cell companies• A range of additional options:

- permanent capital

- listing options

- varied levels of regulation

- passporting through jurisdictions

What sights are we going to see? – The Changing Offshore Landscape• Changes in the type of investors, amounts being invested, the type of

assets being purchased and the purchase costs are driving changes in private equity structures

• Recent negative publicity recently has resulted in certain forced changes in private equity going forward such as:- Increased Transparency and Regulation"We have got to move out of the shadows and open up to scrutiny and regulation. It's not that tough. And actually it's a good discipline." 3i Global Head of Buyouts Jonathan Russell - Financing of Assets within Private Equity Structures“We are close to a time when we'll look back and say we did some stupid things…We need a little more sanity in a period in which everyone feels invincible and thinks this is different.'” Bank of America CEO Kenneth Lewis

What sights are we going to see? – The Changing Offshore Landscape

• The focus will therefore be in the main changes to:

- transparency and disclosure (particularly in relation to reporting of financial performance to investors)

- corporate governance (driven by PE funds listing)

- mitigation of taxation risks (driven by challenges to investment structures by governments)

- the creation of proper security packages for debt

• Structuring in a first class offshore jurisdiction will assist with dealing with these issues

Where to next? – Guernsey's Reactions to an Increasingly Competitive Market

• Guernsey is the premier offshore jurisdiction for private equity funds because of:

- the Guernsey “badge”

- achievable tax efficiency

- the well balanced, pragmatic and user friendly regulation

- flexible/practical vehicles

- experienced advisers and service providers

- the recognised stock exchange and access to other recognised exchanges

- EU directives not applying

- the continued flexibility in response to global trends

Where to next? – Guernsey's Reactions to an Increasingly Competitive Market

• Basic equation for offshore jurisdictions is:

Basic foundation + Responsiveness to Global Trends = Offshore Structuring

• Guernsey’s Responses:

- Review of Guernsey’s Fund legislative and regulatory regimes

- Fast track process: Registered Funds and Qualifying Investor Funds Regimes

- Protected Cell Company legislation amendments

- Introduction of Incorporated Cell Company