1. BEN MORGAN NEW GAIM 2007 Tuesday, 19 June 2007 CORPORATE GOVERNANCE AND MAINTAINING TAX NEUTRALITY

2. Hedge Fund Managers Under Attack? – Hitting the headlines “The tax man is finally catching up with hedge fund managers, those secretive financiers whose complex deals and fat wallets have been the talk of the City for the past few years.”

3. Hedge Fund Managers Under Attack? (continued) “That young man with the flashy Ferraris may end up doing a perp walk at Kennedy while his yacht rusts away in Tortola.” Attracting unwarranted attention The tax man’s bid to be the next Robin Hood

4. Where is the Tax Risk? (worst example case) All of the hedge fund principals are based onshore with most of their operations in the UK Administration + compliance + legal and due diligence functions undertaken principally offshore Poorly constituted and poorly managed board of directors of the fund and offshore fund management company No other substance offshore No repatriation of management fees

5. Eliminating the Risk Maximum tax “footprint” offshore All compliance, oversight, decision making, legal, administrative, cash management and hedging functions are undertaken offshore Staffed offices offshore Offshore presence established at the outset Good corporate governance Dedicated boards with relevant experience

6. Offshore Management and Control Majority resident offshore All strategic decisions offshore – board meeting Composition of board IME exemption

7. The Investment Manager Exemption (“IME”) The UK’s IME regimes requires that a “customary” fee be paid to the UK hedge fund manager What constitutes “customary” + the prospective change to the OECD transfer pricing test The division of responsibility between the offshore hedge fund base and the UK hedge fund base – critical 100% exposure for funds in the event of a failure to comply with IME requirements

8. Other Incentives for Good Corporate Governance Listing of fund managers Listing of funds Rating of fund managers Investor due diligence – particularly from pension fund investors

9. Life’s a Beach – Move Offshore Channel Islands case - Great life style Security, education and health Good financial infrastructure and access to professional service providers Well regulated environment Top tax rate of 20% No capital gains or wealth taxes Good proximity to the City (35 minutes flight to Guernsey) Good time zone

10. Conclusion UK Inland Revenue progress slow Unrelenting pressure has already resulted in massive settlements Pre-emptive action required Good corporate governance critical to protect the fund’s status and ultimately investors