The unit trust as an option for Japanese managers
There is a continuing interest among Japanese investment managers to seek to broaden the suite of fund products they offer clients. They have been considering new structures and vehicles in order to provide a more diverse and efficient offering.
One consistently popular structure considered is the Cayman Islands unit trust. This is a common vehicle for structuring hedge funds in Japan and can provide investors with a traditional and familiar experience when compared with a domestic Japanese investment trust.
“The Cayman Islands unit trust can work very well as a complementary option for Japanese managers,” remarks Christian Victory (pictured), Partner, Appleby (Cayman) Ltd, “The structure has been a recurring theme over many years and is quite popular. It is something managers in Japan are very familiar with which we can assist effortlessly and seamlessly as we have both broad and deep experience in this area.”
From its perspective, Appleby can establish vehicles for Japanese managers, fund promoters and sponsors to target Japanese investors in a business focused, commercial and efficient manner.
“Managers and investors in Japan understand the role of the trustee and the role of the manager within a unit trust. This structure, in particular, allows for a lot of flexibility and delegation of responsibility,” notes Victory.
He explains how the trustee, based in the Cayman Islands, provides ongoing independent governance and fiduciary oversight. The trustee typically delegates the day-to-day operational responsibilities to the manager, who in this case would be based in Japan, and other relevant service providers under the terms of the unit trust deed.
Being a tax neutral jurisdiction with a high concentration of expert service providers, the Cayman Islands can provide a tax efficient and attractive addition to an investment manager’s suite of existing products. Victory points out: “The Cayman Islands unit trust structure we can assist managers in establishing has proven to be a very useful tool to complement a Tokyo manager’s suite of investment products. We also have the honour of counting some of Japan’s consistently top performing and award winning managers among our clients for many, many years.”
Victory outlines how managers targeting investors globally may want to set up a master-feeder structure: “Sometimes a unit trust structure might sit alongside other fund products which feed into a proprietary fund or some other aggregating vehicle. This creates economies of scale, synergies and corresponding efficiencies for target investors.
“So, a manager might set up a limited partnership feeder for US investors, a corporate feeder for European or non-US or US tax exempt investors as well as a unit trust structure which is more familiar to Japanese investors. All these funds can feed into a single master vehicle for example.”
This would be a very transparent structure without any layering of fees. The main purposes would be to achieve tax efficiency, economies of scale and efficiencies of process. “The aim is to do whatever is best for the fund meaning, ultimately, whatever is best for the investors,” Victory stresses.
Partner – Fund & Investment Services, Appleby
Christian is a Partner in the Corporate team. He specialises in advising on all matters relating to Cayman Islands alternative investment vehicles, private equity, funds and investment services in addition to regulatory and compliance matters. Christian is ranked as a ‘next generation partner’ in Legal 500 2020 and is the current Secretary of AIMA Cayman 2020-2022.