Source: Lawyer Jin Jianzhi
The approval of the Bitcoin ETF has greatly increased the liquidity of the currency circle, and the bull market is just around the corner. Many of Mankiw's friends have also begun preparing to set up crypto funds to show off their skills in the bull market. However, unlike the opening of overseas companies and bank accounts, the establishment of overseas crypto funds is not that simple. Based on some of the recent questions frequently asked by friends in the circle, this article will explain the establishment of crypto funds through question and answer methods. In order to facilitate the follow-up implementation of crypto funds.
01 Where is the best place to set up a crypto fund?
Priority offshore locations.
The establishment of private equity funds in onshore locations such as Hong Kong and Singapore requires a license. By analogy, the establishment of private equity funds in mainland China requires the registration and filing of fund managers. And being licensed means higher compliance costs. Taking Hong Kong as an example, generally speaking, those who set up private equity funds in Hong Kong need to obtain a Type 9 license (to provide asset management) and 2 ROs (license responsible persons). The cost of applying for a No. 9 license is about HK$300,000, and the monthly salary of an RO is HK$80,000 to HK$100,000. If it takes 8 months from the establishment of the company to the formal issuance of the license, it is calculated based on the monthly salary of HK$90,000, and the year-end bonus is taken into account. The total cost is approximately HK$700,000 to HK$900,000. In addition, ROs that understand cryptocurrency are a rare commodity, but they will only be more expensive. According to experience, the cost of setting up a private equity fund in Hong Kong is at least HKD 2-3 million.
Andoffshore places provide flexible regulations for the establishment of funds. There is no need to obtain a specific financial license or the difficulty of applying for a license is extremely low >In addition, the tax policy of offshore places is "tax neutral" (tax neutral). For example, Cayman and BVI do not levy income tax Taxes such as capital gains tax,stamp dutyare also not taxed on transactions related to economic activity in other tax jurisdictions. Therefore, setting up a crypto fund offshore is obviously a more cost-effective option.
02 Choose BVI or Cayman?
Choose the most suitable one based on the fund’s objectives and strategies, as well as the investor’s needs and preferences.
Fund Type: Cayman offers two basic fund types, mutual funds (Mutual Fund) and closed-end funds (Private Fund). The fund types provided by the BVI are very diverse. In addition to closed-end funds, the BVI has also created 4 types of mutual funds, including incubator funds, approved funds, and professional investor funds. Professional Fund) and Private Fund (Private Fund), giving investors more personalized choices. If you have some personalized ideas, you can consider whether BVI funds are suitable.
Source of funds: Relatively speaking, Cayman’s regulatory and disclosure requirements are stricter than those in BVI, so institutional investors usually prefer Cayman funds . If you want to attract institutional investors, setting up a Cayman fund is a safer decision.
Expenses:According to experience, the opening costs of BVI funds and subsequent annual maintenance fees are 50%-70% of those of Cayman funds. It is cheaper to set up a BVI fund. If you want to know more detailed fee information, please add Mankiw Lawyer QR code for consultation.
The above is a rough judgment on whether to choose Cayman or BVI funds based on some simple points, butthe specifics still need to be combined with the fund’s goals and strategies, whether to invest in coins or invest in funds. project? Multiple strategies and multiple funds? Single investor? Single investment project? American LP? Carry out further analysis.
03 Who are the external parties involved?
The process of establishing and operating a crypto fund will involve lawyers, auditors, administrators, and other intermediaries (banks, custody, etc.), each with their own division of labor different.
Lawyers
The establishment, raising and operation of overseas funds involve multiple jurisdictions and therefore require the assistance of more than one law firm. According to the lawyer’s dominant position The differences can be divided into leading lawyers (domestic lawyers) and overseas assisting lawyers.
Leading lawyers are usually responsible for most of the substantive legal documents required for the private placement of funds, including the core offering memorandum (if necessary), fund partnership agreements and subscription documents, fund structure legal opinions, etc. . In addition, depending on the project structure and business needs, there may be legal documents such as investment management agreements, investment advisory agreements, subsidiary agreements with investors, possible cooperation agreements at the GP level, and shareholder agreements.
Overseas assisting lawyers are responsible for providing advice on fund structures, reviewing fund documents, drafting resolution documents, and responsible for government filings, etc.
It is important to note that once you decide to set up a crypto fund, it is best to seek the advice of a professional lawyer before formally contacting potential investors. Especially when the potential investors of the fund come from areas with strict financial regulations such as the United States and the European Union, it may involve adjustments to the fund's structure and legal documents, adding information disclosure and representations and guarantees for specific investors in the fund's legal documents, etc. .
Auditors
The main task is to provide audit services for crypto funds, including auditing the fund’s financial statements to ensure that they are true, complete, and accurate It accurately reflects the financial status and performance of the fund; audits the fund's internal controls to assess its effectiveness and compliance; audits the fund's tax matters to assist the fund in fulfilling its tax obligations and optimizing its tax planning.
Administrative Manager
As a third-party service provider, the fund administrative manager independently provides daily administrative services such as anti-money laundering verification and asset valuation. , can play a role in protecting the rights and interests of investors, and can free fund managers from complicated financial and administrative affairs, and focus more on the core management affairs of the fund. Depending on the type of fund and the actual situation, fund administrators usually mainly undertake the following functions:
KYC/KYW, Anti-Money Laundering (AML)/Counter-Terrorism Financing (CTF) Compliance and Due Diligence Services
Fund Net Asset Value (NAV) Calculation
- < p>Foreign Account Tax Act (FATCA)/Common Reporting Standards (CRS) related reporting services
Fund daily administrative management services (including but not limited to investor relations maintenance, issuance Payment notices, investor changes/redemptions, establishing and maintaining accounting records, fund information disclosure and reporting, coordinating communication and cooperation between funds and other intermediaries, etc.)
Other intermediaries
Other intermediaries include banks, custodians, etc. Their main task is to provide custody and transfer services of funds and assets for crypto funds, including opening and management The fund's bank account, receives and pays the fund's capital flows; custody and supervises the fund's encrypted assets, executes the fund's trading instructions, and confirms and records the fund's trading activities.
04 Summary
The entry of traditional old money is inevitable Compliance requirements for crypto funds are increasing. Overall, setting up a crypto fund is not simple, but if you find the right and experienced intermediary (to be honest, mainly lawyers), it will save you a lot of worry. If Mankiw’s friends still want to know more about crypto funds, please feel free to leave a message in the comment area or backstage. We will talk about it later in the article.
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