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                      Henry Davis York                          Main Contact Partners
                       Martin place                           John currie
                      sydney nsW 000                           Tel +   99 

                      Tel +   99 000                      James lonie
                      fax +   99 999                      Tel +   99 8
                      DX  sydney
                                                                Elizabeth gray
                                                                Tel +   99 89

                                                                nikki Bentley
                                                                Tel +   99 

                                                                Kathy civardi
                                                                Tel +   99 0

                                                                alex Mufford
                                                                Tel +   99 

                                                                for a full list of HDY
                                                                partners, please see our

                      This publication is general in nature and its brevity could lead to
                      misinterpretation. no responsibility can be accepted for those who act on its
                      contents without first consulting us and obtaining specific advice.

           Starting out                                       1
           Your aims                                          2
           Step 1: the right structure                        2
           Tax 3
           Who owns what                                      3
           Step 2: financial services licensing and regulation 4
           Financial markets licensing                        5
           Step 3: documentation                              6
           Specific issues for hedge funds                    7
           Immigration and employment law                     7
           Let’s talk                                         7
           Introducing HDY’s ‘start-up’ specialists           8
    sTarTIng up In THE ausTralIan fInancIal sErvIcEs InDusTrY

                                   Starting out
                                   If you’re about to make a journey. It’s
                                   to somewhere that you haven’t been
                                   before. The journey could be long,
                                   may be difficult, then it’s good to go
                                   with someone you trust. Even better,
                                   when they’ve taken the journey many
                                   times themselves.

                                   You want to end up in the right place
                                   and in one piece.

                                   That’s where we can help. HDY
                                   focuses on providing legal services to
                                   companies in the financial services
                                   industry. We’ve helped many of our
                                   clients to start new financial services
                                   businesses and are frequently
                                   involved in setting up a broad range
                                   of new investment vehicles.

Your aims                                                   Step 1: the right structure
We listen first.                                            When it comes to settling a structure for your business
                                                            or fund, take the third little pig’s advice: use bricks. You
We provide legal services that are relevant and of value
                                                            can’t build something big without good foundations.
by first understanding the objectives of our clients and
the commercial drivers of their businesses.                 To get the structure right we look at it from a number
                                                            of different angles and through the eyes of different
It’s even more important for start ups. You don’t just
                                                            stakeholders. Owners, managers and investors don’t
want to talk about starting a business or fund. You want
                                                            always see things in the same way.
to get out into the market, and usually quickly or the
opportunity will be lost.                                   at a minimum, we consider:

To respond to your needs, we have a team of specialists     •   tax issues;
who address the relevant legal issues that arise for        •   licensing and other regulatory issues;
a start up. specialists drawn from a diverse range of
                                                            •   what documentation needs to be prepared,
practice areas such as financial services, tax, IT, Ip,
                                                                including, if relevant:
immigration and employment law.
                                                                -   establishing the ownership vehicle for
We’ll put together the right team for you, comprised of a           the business (for example, a joint venture
mix of specialists for the job.                                     agreement or the constitution of a company);
                                                                -   establishing the investment vehicle (such as
                                                                    the constitution or trust deed for an investment
                                                                -   client documentation (which may include
                                                                    standard client agreement forms); and
                                                                -   documentation for third party service providers
                                                                    (for example, a custody agreement);
                                                            •   disclosure documents to be used when offering
                                                                financial services and products;
                                                            •   funding arrangements; and
                                                            •   compliance arrangements.

    Tax                                                        Who owns what
    There are  certainties in life and one of them is that    The benefits that flow from the new business or fund is
    you will be taxed.                                         the reason why you’re thinking about investing time and
                                                               money in the project. so we pay attention to what these
    as you’d expect, tax issues (australian and offshore)
                                                               benefits will be and how they are to be shared.
    often drive the business structure, dictating the legal
    form of ownership and management arrangements for a        Ownership vehicle structure: what do the
    new business.                                              owners and managers get?
    Our tax team includes experts on international taxation    Maybe you’re opening an australian branch of an
    issues that commonly arise in establishing a business in   offshore company or establishing a wholly-owned
    australia, who can advise on issues such as:               subsidiary. If so, the ownership vehicle structure will be
    •   whether to use a branch or subsidiary structure;       more straightforward.
    •   the concessions and exemptions available to non-       Maybe the ownership vehicle structure is more complex.
        resident investors from capital gains tax;             If you’re entering into a joint venture, the time taken
    •   whether an investment fund structured as a trust       in appropriately documenting the relationship is well
        will be a trading trust and the tax treatment of       spent. The process of negotiation and documentation
        income and capital gains of such a trust;              ensures that all parties have the same intentions,
                                                               expectations and understanding and that they have
    •   stamp duty, goods and services tax and other
                                                               considered a broad range of possible scenarios that may
        revenue laws that may differ from those of your
                                                               unfold. This process is often more difficult than the
        home jurisdiction;
                                                               negotiation and drafting of the legal document prepared
    •   the application of the controlled foreign company
                                                               to record the agreement the parties have reached.
        and foreign investment fund provisions; and
                                                               Management incentives may also need to be
    •   the exemptions that may apply to resident and non-
                                                               documented, such as profit sharing arrangements,
        resident investors.
                                                               executive performance remuneration and equity
    If individuals are involved, the personal tax affairs of   participation rights.
    those individuals should be considered as well.

Investment vehicle structure: what do the
investors get?
                                                                Step 2: financial services
In australia, unit trusts are typically the investment          licensing and regulation
vehicles of choice. This is largely due to the flexibility of   almost everyone needs a licence.
trusts in dealing with income and capital and, subject
to specific conditions, that the trustee will not be taxed      A wide regulatory net
(though the unitholders will).                                  There are some legislative exceptions and the regulator,
If you’re setting up an investment vehicle structure, you       the australian securities and Investments commission
should consider issues such as:                                 (ASIC) has exemption powers, but, as a general rule:

•   whether custody and investment management                   •   anyone carrying on a financial services business in
    should be separated;                                            australia needs an australian financial services
                                                                    licence (AFS Licence);
•   whether there should be separate classes of
    investors;                                                  •   it doesn't matter if your clients are all wholesale or
                                                                    high net worth, you still need an afs licence; and
•   the mix of debt and equity; and
                                                                •   as you'd expect, the rules are more onerous when
•   the fee structure for the fund.
                                                                    you're dealing with retail clients compared to
                                                                    wholesale or high net worth clients.

                                                                The licensing provisions are technical but we have the
                                                                expertise and experience to help you. We are frequently
                                                                consulted by local and international groups and
                                                                businesses on licensing issues.

                                                                There is conditional relief available for some regulated
                                                                offshore businesses.

                                                                Retail and wholesale clients
                                                                If all your clients are wholesale or high net worth,
                                                                you’ll generally have a less prescriptive disclosure and
                                                                compliance regime. Importantly, then you won’t need:

                                                                •   to prepare certain retail disclosure documents;
                                                                •   to comply with certain retail client-focused
                                                                    protections, conduct rules and client reporting
                                                                    obligations; and
                                                                •   to register the investment vehicle with asIc (if it is
                                                                    a trust) or comply with the additional requirements
                                                                    for a registered investment vehicle.

                                                                generally, the procedure for obtaining your afs licence
                                                                will also be more straightforward.

    There are a number of tests used to work out if a client     There are also certain financial conditions which the
    is wholesale or retail. for example, generally a client is   holder of an afs licence must satisfy.
    wholesale if they have certified net assets of at least
    a$. million or gross salary for the last  years of at
    least a$0,000, the price of the relevant product           Financial markets licensing
    is at least a$00,000 or the client is a "professional
                                                                 Operating a financial market in the australian
    investor" (for example, holds an afs license or controls
                                                                 jurisdiction requires an australian market licence and in
    $0 million for investment purposes).
                                                                 some cases a clearing and settlement facility licence.
    Tricky licensing questions                                   We are one of the few australian firms to have a
    Most of our clients are more interested in the practical     dedicated financial Markets team that is comprised of
    application of the licensing regime than technical issues    members who practice full-time in the area of financial
    of interpretation. But if you are thinking of dipping your   market regulation. They have a high profile among
    toe into the australian market, you’ll still need to know:   industry representative associations and good working
                                                                 relationships with asIc.
    •   Who can you talk to?
    •   What can you say?
    •   When you're done talking, what happens next?
    •   at what point does testing the water become
        something more and require that you hold an afs
    It's not always easy to see where the line is and the
    technical nature of the licensing rules doesn't make the
    job easier. for example, under australian law you will be
    taken to be conducting a financial services business in
    australia (and may need an afs licence), even though
    you're offshore, if you take steps to induce an australian
    business or person to use your financial services.

    Getting licensed
    an afs licence will authorise a person to provide
    specific financial services. so we work closely with our
    clients to identify the authorisations required.

    as part of the licensing process you will need to provide
    detailed information on key personnel and document
    compliance procedures. When asIc receives an afs
    licence application, it pays close attention to these
    matters. If you don’t have personnel that meet the
    regulatory requirements, you will need to think about
    employing local persons with specialist skills (which
    may raise employment law issues) or outsourcing
    particular functions.

Step 3: documentation                                          Product design and enforceability issues
                                                               Our law is fairly parochial and compliance with offshore
now that you’ve got your licence, step  is preparing
                                                               disclosure regulation generally does not help in
appropriate documentation.
                                                               complying with australian law and regulation.
Disclosure documents                                           In relation to certain products including, in particular,
There are  key documents that must be provided when           derivatives and foreign exchange products, product
dealing with retail clients:                                   design enhancements may be necessary for the
                                                               successful offering of the product in australia.
•   a product disclosure statement when issuing or
    selling a financial product;                               There may also be issues in relation to the
•   a financial services guide is to be given if a financial   enforceability of certain derivative products in australia.
    service (such as financial product advice or the           We are highly experienced in dealing with these issues
    issue or sale of a financial product) is provided          and can assist in designing products which are suitable
    (subject to some exceptions); and                          for use, and enforceable, in australia.

•   a statement of advice when financial product advice        Client agreements and third party service
    is provided.                                               agreements
These documents should be prepared with great care             Before you can open the doors, you will need to have
in order to comply with the stringent content and risk         appropriate documentation for:
disclosure requirements.
                                                               •   investors and clients, such as standard client
Even if you're only dealing with wholesale clients there           agreement forms in addition to the retail disclosure
are a number of rules to bear in mind when preparing               documents mentioned above; and
an information memorandum for offering your product.
                                                               •   third party service providers such as custodians,
for example, any forward looking statement will be
                                                                   administrators and prime brokers.
deemed to be false and misleading unless the person
making the statement has a reasonable basis for the            We adopt a plain-language “concise but precise” style
statement.                                                     of drafting.

In recent times, asIc has focused on disclosure
documentation relating to complex financial products,
including hedge funds, cfDs, foreign exchange
products and other alternative investments. We regularly
prepare and review such documents and advise on due
diligence and verification issues.

    Specific issues for hedge                                   Immigration and employment
    funds                                                       law
    Of course your business will have its own unique            Employment arrangements for employees located in
    characteristics. It will also have some common              australia must comply with australian employment
    characteristics. for example, some particular issues to     legislation (even home office staff seconded to
    consider in relation to hedge funds include:                australia). Our Workplace relations and safety group
                                                                can assist you with all employment and industrial issues
    •   Target investors: Your target investors, whether they
                                                                such as employment terms and conditions, contracts,
        be retail/wholesale, australian residents/offshore
                                                                employee share and option schemes, long-term
        investors, including us tax exempt and/or us
                                                                workplace strategies and terminations and disputes.
        taxable investors, will dictate the structure of your
        fund.                                                   One of our partners is a registered migration agent and
    •   Fee structure: Hedge funds usually adopt a different    he often assists clients with obtaining temporary and
        fee structure to traditional funds, including a         permanent visas for their offshore staff.
        performance fee component. There are many
        different performance fee models, including
        multi-series, equalisation, high watermarks and         Let’s talk
        hurdle rates which are often complex.                   starting a new business can be challenging (and
    •   Capacity constraints: Hedge funds often have a          exciting as well). let’s talk it over.
        limited amount of money that the manager can
        invest in a particular strategy without a negative
        impact on performance.
    •   Liquidity: Hedge funds may need to consider lock up
        periods, early exit fees and excluded notice periods
        to address liquidity of the portfolio.
    •   Performance track record: start up fund managers
        need to consider marketing to prospective investors
        with a limited or no track record.
    •   Disclosure documents: asIc has increased its
        surveillance of licensees operating hedge funds and
        in particular surveillance of disclosure documents
        of hedge funds. Disclosure of past performance and
        forward looking statements attract special attention.

InTrODucIng HDY’s ‘sTarT-up’ spEcIalIsTs

     John Currie, Partner             James Lonie, Partner              Elizabeth Gray, Partner
     Financial Markets & Products     Funds Management                  Funds Management
     Hedge Funds                      Corporate Advisory                Corporate Advisory
     Direct line: +61 2 9947 6333     Direct line: +61 2 9947 6581      Direct line: +61 2 9947 6589
     Email:    Email:     Email:

     Alex Mufford, Partner            Nikki Bentley, Partner            Kathy Civardi, Partner
     Financial Markets & Products     Hedge Funds                       Funds Management
     Funds Management                 Funds Management                  Corporate Advisory
     Direct line: +61 2 9947 6572     Corporate Advisory                Direct line: +61 2 9947 6064
     Email:   Direct line: +61 2 9947 6245      Email:

     Roger Dobson, Partner            Ian Enright, Partner              Vanessa Andersen, Partner
     Banking & Finance                Risk, Insurance & Construction    Immigration & Employment Law
     Direct line: +61 2 9947 6382     Direct line: +61 2 9947 6202      Direct line: +61 2 9947 6485
     Email:   Email:     Email:

     Eugene Tan, Senior Associate     Seema Mishra, Senior Associate    Susan Blanche, Senior Associate
     Financial Markets & Products     Taxation                          Taxation
     Hedge Funds                      Direct line: +61 2 9947 6441      Direct line: +61 2 9947 6486
     Direct line: +61 2 9947 6150     Email:    Email:

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