Loud and Clear – April 1st 2019

Brexit – the “Lunar Loophole”

In our times of greatest need, we often raise our gaze to the heavens. Today, on April 1st, we find ourselves on the wrong side of the original Brexit deadline, with no resolution. And there remains no certainty for those looking to raise capital or invest in and out of the UK and the EEA.

How we got here, and who is to blame, is tomorrow’s question. Today’s concern remains: What can I do, to free myself from the burden of AIFMD, as well as national private placement regimes, and market my fund freely to the UK, the EEA and anywhere else, I choose? Nobody has found an answer to this question.

Until now, that is…and it is the fruit of a very special brand of lunacy, indeed.

In this brief article, I will set out the key elements of what we call the “Lunar Loophole”, whereby a fund is domiciled on our major satellite, taking advantage of the absence of the regulatory regime it might be subject to, elsewhere. The selenial structure we propose takes advantage of an oft-forgotten set of statutes negotiated in 1971, following the successful exploits of Aldrin, Armstrong et al., two years previously. It happens that the “sailor’s friend” can be every bit as much the fund manager’s friend.

The 1971 Lunar Accord, ratified by 157 national governments in the years following its birth, was conceived to protect the neutrality of our orb of night and any institutions thereof. It safeguards the ability for all activity between lunar and domestic institutions to take place without the interference of national regulatory and legislative influence. An unintended (but wholly welcome!) consequence for fund managers is that they may also take advantage of this framework, for fund marketing purposes.

Clearly, the personal tax treatment for lunar gains is untested, but expatriate US citizens making cheddar on the giant cheeseball should not be subject to tax, as US legislation only allows for tax to be calculated according to WORLDWIDE income – excluding any gains made “off-world”.

With regards to taxation at the fund or manager level, whilst it is indeed possible that high frequency trading funds may struggle to qualify for an exemption, private equity and infrastructure should be fine.

The major components of the structure are detailed, below:

Sadly, today isn’t actually the day we unveil a lunar structure to navigate Brexit and other fund marketing regulations…it’s April 1st, and if you’ve read this far without twigging, you may proudly proclaim your status as an official April Fool – no shame in that, of course.

If you’d like to share this post and see if your colleagues, peers or friends have any interest in domiciling a manager or fund on the moon, just copy and paste this link and email or message it to them:

https://www.mjhudson.com/newsletter/the-lunar-loophole/

If you are, however, interested in how you actually CAN navigate the Brexit maze, you should speak to our experts in the MJ Hudson Law team or our Fund Management Solutions wizards. And I, of course, can help you with your marketing, communications and fund positioning, as well as all of your fundraising documentation needs.


If you would like help developing your brand or positioning your firm, please contact Matthew Craig-Greene using the contact details below.