Business Recovery Services – Funds

As a leading provider of fund restructuring and wind-down solutions, our team has extensive experience dealing with fund investors, fund managers, regulators and industry service providers.

Across the range of investment strategies and corporate and partnership structures, alternative investment vehicles are fundamentally reliant on investor confidence in a fund’s portfolio, its management, and its liquidity position. Where market, or other, factors adversely impact confidence and liquidity, restructuring often becomes necessary.

In many cases short term liquidity issues can be overcome through restructuring of capital withdrawals, to all investors’ benefit. Where the investment model becomes fundamentally unviable wind-down may be required.

The team has extensive experience of working with fund managers, investors and their advisors to identify, review, and implement appropriate restructuring and wind-down strategies through both formal appointments, voluntary liquidations and in an advisory role.

Additionally, where investment funds have reached the end of their natural life, or investment managers are seeking an exit, a voluntary liquidation process will often be appropriate. We have a dedicated team carrying out the voluntary liquidation of a large number of both single entity and group voluntary liquidations of corporate and partnership entities each year.

Official & Provisional Liquidations

The creditor friendly Cayman Islands insolvency regime provides the optimal forum for enforcing investor rights and ensuring a transparent and effective cross-border winding-up. Our appointees have acted in a large number of major compulsory and provisional fund liquidations of Cayman Islands funds.

As such, the team has extensive experience in complex cross-border fund liquidations, across the range of investment strategies and investment structures. The team has worked with stakeholders, legal advisors and regulators to deliver:

  • The unwind and realisation of a wide range of investment portfolios including CDOs, MBOs, illiquid class 3 assets, private equity, real estate, loan books and receivables, and derivative and convertible instruments.
  • Numerous complex cross-border asset realisations, including Middle East, EMEA, North & South America, South East Asia and [PRC].
  • Close collaboration with investors, creditors and other financial stakeholders.
  • Challenging jurisdiction to ensure investors are protected through the Cayman Islands regime.
  • Forensic investigation of conduct of service providers, trading strategies and valuation methodologies.
  • High profile, successful litigations against service providers and directors.

Voluntary liquidation & corporate simplification

We have a dedicated team delivering voluntary liquidation and corporate simplification solutions to investment managers and administrators. Our experience, strong relationships with service providers and regulators and our focus on pre-planning enables us to deliver the most cost effective and timely solutions both for simple shell company liquidations and the wind-down of complex corporate and partnership structures.

We will agree cost and timescales with you in advance and support you in your pre-planning and investor communications strategy.

Our depth of experience in the alternative investment market means we have developed solutions for the range of issues often encountered in the wind-down of investment structures, such as:

  • Investor communications, (incl. K1’s and PFIC requirements)
  • Solutions for rump of illiquid and contingent assets
  • Unclaimed funds and redemptions
  • Onshore tax provisioning issues
  • Cayman Islands Monetary Authority audit waivers and reporting requirements
  • Unwind of complex structured finance and derivative positions

Investigations & inspectorships

The team has conducted a wide range of investigations, on behalf of investors, creditors and regulatory authorities. In many cases these investigations have taken place under the umbrella of formal appointments, such as liquidations, controllerships and inspectorships. Alternatively, investigations may be conducted voluntarily, subject to agreed upon procedures.

Alternative investment vehicles and their investment managers rigorously protect proprietary knowledge, including details of investment strategy, positions and liquidity. This approach is understandable. However, in stressed circumstances, and in particular where redemptions have been suspended or side-pocketed, a lack of transparency often impairs investors’ ability to price their holdings and develop their own mitigation strategies. In particular, minority investors faced with the prospect of long suspended, gated, or side-pocketed redemptions often find themselves with limited understanding of the issues faced by the fund, this in itself can erode confidence.

Where liquidity preservation tools, such as suspensions or gating, are required to protect the interests of investors, it is essential that the investment manager ensures adequate information flow to their investor group.

Third party NAV reporting and annual audits are clearly of value. However, investors in stressed and distressed funds benefit from a real-time, independent, commercial perspective to close the information gap and to fully understand the unwind strategy. One key to resolving potential investor disputes is to establish an independently validated fact-base, and a Cayman Islands inspectorship provides a useful tool for delivering this.

Under Cayman Islands law, a fund may appoint an inspector, without the need for court intervention, to perform a limited scope review and provide investors with an independent validation of the fund’s liquidity position and unwind strategy. Alternatively, a one-fifth minority group of investors may petition the court for appointment of an inspector.

The scope of an inspectors’ review will usually be limited to cover the requirements of the company / management / investors, and may include:

  • Liquidity Review: reviewing the fund manager’s short and long term cashflow model
  • Valuation Methodology: in particular reviewing the methods applied to illiquid assets in the context of market conditions
  • Investment Strategy: reviewing the investment approach adopted to date in the context of the fund’s offering documents and the proposed strategy to mitigate stressed circumstances and unwind positions

By ensuring limitation of scope, the costs of inspectorships may be determined from the outset, and will generally be met by the fund.

PwC’s advisory team has extensive experience in preparing inspectorship opinions both for investment funds, Cayman domiciled holding companies and investors. In doing so, we have successfully worked with investment managers and company management to establish a common, independent fact base that enables directors and managers to resolve potential issues.

Due diligence & fund restructuring advisory

Due Diligence

The global financial crisis and a number of high profile fund blow-ups have generated increased focus on adequacy of due diligence in the alternative investment industry.

A robust due diligence process will examine the breadth of financial, commercial, governance and operational features of a target investment. Further, diligence doesn’t stop at the point of investment. Ongoing diligence enables astute investors to spot adverse market or operational changes and exit positions first.

PwC advisory has a depth of experience in identifying liquidity and wider performance issues on behalf of investors and regulators. We will support your due diligence process with independent external review, providing our report and recommendations to support your business case analysis.

Restructuring Advisory

In most cases, a hedge fund manager will only get one opportunity to restructure operations in the face of liquidity constraints or market stress. As such, it is imperative that the restructuring put in place is fit for purpose, both from a legal, and commercial / operational perspective. In our experience, a flawed restructuring will inevitably lead to insolvency at a later date, with consequent losses for investors.

The Advisory team has identified, developed, implemented and reviewed restructuring solutions across a wide range of commercial concerns. Our experience in alternative investment means we know what will, and will not, work from a commercial and operational perspective.

We will work with fund managers and service providers to help develop, review or report on restructuring proposals. As an experienced, independent party, we bring comfort to investors and additional insight to the process. This can be critical when asking an investor base to participate in a restructuring plan, or indeed when communicating the details of liquidity measures to investors.