Red Herring Option
One of the difficulties when considering establishing an offshore fund is to discover precisely what the target investors want from the fund, before it has been launched. In Custom House's experience this can be resolved by "pre-selling" the fund off a "Red Herring".
What is a Red Herring?
A Red Herring is a draft offering document, which, although subject to alteration and amendment, nevertheless describes the proposed fund and its objectives in substantial detail - i.e. showing the corporate and management structure and giving details of the investment advisor and investment strategy, the proposed prime broker, custodian bank and other service providers, as well as fees and expenses, etc.
The primary advantage of pre-selling a fund off a Red Herring is that, if there is any particular feature of the proposed fund which is in conflict with prospective investors' requirements, the fund could be restructured and the final offering document can be changed to accommodate those requirements at nominal cost and without any embarrassment.
The Red Herring and an Irish Stock Exchange Listing
If required, Custom House can also arrange for a Sponsoring Member Firm (the "Sponsor") of The Irish Stock Exchange to review and comment on the Red Herring and, for a nominal fee, provide a conditional opinion advising, without commitment, whether or not the Sponsor believes that the proposed fund would be successful in applying for a listing on The Irish Stock Exchange.
How Clients' Benefit
The Red Herring Option enables the Client to test the market and, if necessary, make adjustments (for instance, to the fees, investment strategy, or investment restrictions), prior to issuing the final offering document, thereby ensuring a more successful launch for the fund. And, of course, if, as a result of these pre-selling efforts, it is discovered that the market doesn't want, or is not yet ready, for the particular type of investment product, then the launch of the fund can be cancelled or put 'on hold', without suffering the embarrassment of a failed offering and, more importantly, at a relatively low cost, thus avoiding the full organisational and promotional expenses that would otherwise be incurred.
How the Red Herring Option Works
The Red Herring Option is a facility that Custom House offers Clients seeking to set up new offshore funds. Under the Red Herring Option, Custom House will complete nearly all of the procedures for establishing and organising an offshore fund, including drafting the offering documentation and reserving the name and negotiating terms with the various service providers, such as lawyers, auditors and custodian bank, but without actually incorporating the fund as a corporate entity. Custom House then produces the "Red Herring" - which is a Draft Offering Document. This is done without committing the Client to anything more than a flat "Red Herring Fee", to be agreed, on the understanding that if the Client proceeds with the establishment of the fund:
a) Custom House will be retained to organise the fund and will be paid its full fund organisational fee as agreed, less the "Red Herring Fee" and
b) Custom House will be appointed as the Administrator of the fund when it is launched.
If the Client is seeking a Listing, then the Sponsoring Member Firm will also charge a nominal fee for reviewing and commenting on the Red Herring, which fee may be offset against the sponsorship fee, depending on the Sponsor, if the Client proceeds with the establishment and listing of the fund.
US Funds
The ability to produce and cost of producing a US Red Herring will depend on the US attorney selected.