In the offshore world Maples and Calder need little introduction. They have retained their massive footprint in their native market with the help of almost half a century of experience, and the story of their growth, accompanying the investment fund industry from its start as a niche sector to its position as an important part of the global financial system, has often been told. Like any successful business, Maples and Calder (“Maples”) has sought to consolidate its strong position as a leading full service international law firm, and also to push on.
Maples strives to meet the needs of its clients and their instructing onshore counsel and continually reshapes its offerings to address the changing demands of the industry and marketplace. Their latest expansion move is to Singapore, which is now their second office, along with Hong Kong, in Asia, and their seventh worldwide, offering clients the option to access their world-renowned Cayman Islands, BVI and Irish practices with the added convenience of local support in their client’s own time zone and appropriate language. Although it does not come with a practicing local law like the move to Dublin in 2006, the move into Singapore is important for the law firm.
Any move that Maples make is based on the recognition of a strong client demand. As Paul Govier, partner in London, explains, this should not be taken as a sign of a renewed expansionary era into as many territories as possible, even though it comes hot on the heels of the opening of a branch in Delaware by the affiliated Maples Fiduciary Services business in 2011. “It’s not the rate of our expansion that is interesting,” he says, “it’s that we are steadily trying to build our offering to meet client needs. Singapore is an example of that, Delaware was an example of that.”
Maples will not move unless they are certain that there is a viable asset management market that will need access to the Cayman, British Virgin Islands, or Irish law which Maples lawyers practise. They cede the small advantage of the early bird, but they can more than make up for it by thinking through the decision carefully, with a long-term view.
“We’re not trying to be everywhere,” says Govier, but if the choice is made, “we go to Singapore because there is a real client demand for it, and when we do something we do it properly.”
In the case of Singapore this was a case of working out if it was just a minor bubble or a real, viable option for continued growth. “We waited to see whether we were convinced that Singapore would take off as an asset management centre in particular,” says Govier. “We are convinced and we are committed to that.”
Window into their world
Another part of their growth plan which was spurred by client demand for international reach is the extension of their cutting-edge e-services platform. This has been running for a few years now, offering 24-hour secure access to every part of a client’s individual account, from corporate records, to transactional documents, to important documents including legal opinions, billing information, important news and online conferencing. Crucially, the software updates their records automatically, without the need for separate input of data.
Govier describes the company management software, securely accessible from anywhere with an internet connection, as a “window into their world” for the client. What is new for 2013 is a truly international capability. Tatziana Paraguacuto-Maheo, also a partner in London, explains that “We’re launching an advanced version and have put in a lot of IT and resources to improve it.”
The platform now can handle any jurisdiction internationally – even those not traditionally associated with hedge funds. This capability was a significant challenge – and one which several software giants were not willing to take on – but Maples e-services can now be tailored to any jurisdiction and offer the client a centralised company management system, wherever they
A real divergence
Maples have shown a strong commitment to growing their business globally as a unified group, including their corporate service business, administrative fund services, and fiduciary services. In this, Maples are emblematic of one side of a real divide in the industry, by choosing very firmly to stay on the path of being able to offer a comprehensive range of services, as opposed to only attending to clients’ legal needs.
“There’s a real divergence there,” says Govier. “We’ve taken the strategic decision to keep the company formation and annual on-going corporate service business in particular coupled with the law firm. We think our clients expect us to do so as they regard it as being a critical part of our service offering. It’s very simple: if someone phones me on a Friday afternoon and says, ‘I need a new manager or a master/feeder structure, and I need it now’, I need to be able to say, ‘No problem.’”
This ability is central to the Maples model, and they would be a very different business if they followed the other fork which has come in the path of the offshore industry. They like cutting the middle man and increasing efficiencies by keeping it in-house; they don’t have to double up on know-your-customer (KYC) duties, for instance. Maples also believe that, coming from a name in which they trust, this ability is valuable to their clients.
An increase in start-ups
The number of launches has stayed relatively constant over the past year, as has the share of those launches worldwide which have been Cayman-based. This number is level in what is starting to be seen as a normal rate after the fall from pre-2008.
“We’re nowhere near back to the days of ‘06 and ‘07 where you had 150 funds a month,” says Govier, “but I would say we’re probably doing 80, 90 funds a month in Cayman still. I think that’s broadly consistent with post-crisis levels.”
What is slightly different, however, is the constitution of this group of launches. The period after the crisis was not a good time for untested managers to collect investments, partly because investors became increasingly wary, and partly because there was simply not the mass of potential investors. This has gradually started to change.
“In the last 18 months we’ve probably seen more new start-ups,” says Govier, “whereas before, in the immediate to short-term aftermath of the crisis, the only people able to launch funds were the really big fund managers.”
Added to this is a boost in the number of second funds from managers who were themselves starting out a few years ago. Another emerging theme is the growth of seed investors. “There are a lot of seed deals coming out of the US,” says Paraguacuto-Maheo. “There is a lot of US money in flow, particularly from institutional investors including pension funds and ERISA investors.”
This is explained in part by the fact that the crisis hit the US earlier than the EU, resulting, as Paraguacuto-Maheo says, in a “first in, first out” situation, coupled with more aggressive monetary policy aimed at hauling the US economy out of the mire. There may still be large amounts of debt on US balance sheets, but there is a higher cash flow than in Europe. Also, in a low interest rate environment, says Paraguacuto-Maheo, “ERISA investors are looking for more attractive returns and turning to the alternative sector.”
Investor-driven changes may be the priority for managers, but the regulatory changes which have come in and which are still to come are unavoidable for any fund operating in the main jurisdictions, but especially those whose strategies could place them in the purview of multiple jurisdictions. FATCA from the US has been a big driver of work for lawyers with any US investors, who have had to comply with the withholding and reporting requirements from 1 January this year. On 15 March 2013, the Cayman Islands Government announced that it would adopt a Model 1 intergovernmental agreement with the US in relation to FATCA. This will simplify FATCA compliance for a range of Cayman Islands financial institutions that fall within FATCA’s scope. The decision has been welcomed by Maples who has been heavily involved in the consultation process in relation to FATCA.
In Europe the biggest regulatory issue is of course AIFMD, which is starting to exercise managers looking to market in the EU. The directive is causing a lot of anxiety and, for the lawyers interpreting it, a lot of extra work. This is a clear burden for managers and service providers, but there are ways of finding workable solutions.
For the short to medium term Maples foresee parallel structures as the way forward, with funds duplicated, but compliant with each of the separate regimes. For your typical London manager with a Cayman fund, this will not entail too much difference relative to some of the more overblown fears being voiced of the AIFMD putting an end to Cayman as a jurisdiction. The opposite has, in fact, happened, and a need for having an Irish and a Cayman fund is growing.
“You need both in this brave new world,” says Govier, “which is annoying for clients, because previously they had one cheap and cheerful Cayman fund, and they could market everywhere, but also potentially exciting because they now have a passport for the EU product and maybe they’ll be able to access more investors than they have previously.”
What will be different is thatmanagers are going to have to consider their marketing strategies in detail. Those looking to actively target EU investors on a pan-European basis may want to go for an Irish fund, with the passport advantage which that now offers. However, the negative implications of this decision – notably full compliance with all the provisions of the AIFMD – including the depositary and remuneration requirements – have to be taken into consideration as well and may mean marketing in the EU on a more limited basis of existing national private placement regimes retains its attractions where funds would basically need only comply with the transparency and reporting provisions of the AIFMD.
Spotlight on governance
Another of the big issues, which Maples in particular will be watching, is the corporate governance review, initiated by CIMA, which is currently being debated in the Cayman Islands. It has generated a lot of attention, but despite welcoming the consultation initiative launched earlier in the year, Maples do not foresee changes as great as those being reported in some quarters.
Corporate governance has certainly been in the spotlight recently, with the now infamous Weavering case standing as an emblem of what can go wrong if procedures are not robust. However, Govier believes that the prosecutions after Weavering paradoxically show that the regime is robust, as Weavering is the only case of note to emerge from the crisis.
“Post-crisis if you look at the case history, the crisis showed one thing very clearly: that the Cayman structure works very very well,” says Govier. “The litigation that has happened post-crisis is far less than anyone expected and doesn’t have anything to do with the structure. The structure held up brilliantly.”
Whatever the outcome of the consultation, there is a general move towards a more uniformly rigourous governance regime worldwide. The differences in attitude between the US and Europe are being ironed out.
“I think there is a difference of culture for corporate governance with US clients for example,” explains Paraguacuto-Maheo. “It can be explained primarily by structural considerations but now, even in limited partnership structures, we are seeing Governance boards being set up. This push for more corporate governance is principally driven by institutional investors. In Europe it is totally different. People are very sensitive and have been for a long time, not only because of the use of corporate structures, but also because of tax and regulatory considerations.”
Maples Fiduciary Services, an operating division of the MaplesFS Group, who provides specialised fiduciary services to a wide range of clients and structures, has a long and established experience in providing independent directors to investment funds and will continue to contribute to the debate and keep themselves informed of these changes.
Maples are continuing to try to respond to the needs of the hedge fund community as they have done for so long. This on-going commitment to meeting client needs will be at the forefront of the effort to retain the good name which Maples has built. “A lawyer can have reputation for lots of things,” explains Govier, “but you have got to be good quality – quality is critical.”