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Alternative Market Briefing

Cayman folks see increasing use of Limited Partnership structures for master funds

Thursday, March 13, 2014

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Darren Stainrod
Benedicte Gravrand, Opalesque Geneva:

A hedge fund industry development that was noted during the recent Opalesque Cayman Roundtable is the increasing use of Limited Partnership structures for master funds, whether via Delaware or Cayman. According to Darren Stainrod, Principal at HighWater Limited, a provider of professional directors and related services to the alternative investment industry, the use of the structure increased from 5% to 10% of launches to 30% to 40% of recent launches, as it is more suitable for U.S. investors for tax reasons.

"This creates an interesting situation from a corporate governance standpoint as traditionally we would sit on the boards of the Cayman feeder and the Cayman master," he explains. "Once that becomes a Delaware master or a Cayman LP master, then we typically have no responsibility, especially for U.S. managers who usually are the General Partner to the LP master."

He goes on to say that this creates a situation where directors are sitting on a feeder board without any insight or control over what takes place at the master level. To address this issue, he encourages managers to form an advisory committee; such a committee has powers with respect to the master fund, such as liquidity, suspensions, etc. although this area is evolving.

An advisory committee does not have the full fiduciary responsibility that a board of directors does, he adds, &quo......................

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