EL SALVADOR Trends and Developments Contributed by: Héctor Torres, Annette Herrera and Daniel Leiva, Torres Legal
reputational and operational weight that conventional offshore structures increasingly cannot offer. In practical terms, a Salvadoran corporation can serve as the parent of a real estate portfolio across Colom- bia, Brazil and Mexico. If the rents, dividends or capi- tal gains are generated and obtained in those jurisdic- tions, El Salvador imposes no local income tax. From the perspective of the fund manager, the economic result is comparable to Cayman, but without artificial economic substance requirements, nominal directors, reputational friction or growing banking access dif- ficulties. The LP/GP model and its structural limits The global private equity, venture capital and alterna- tive asset management industry has historically been built on the Anglo-Saxon model of the Limited Part- nership (LP) and General Partner (GP). For decades, this architecture was sufficient: it allowed capital to be raised, investment authority to be exercised, returns to be distributed, and fund governance to be organ- ised through contractual arrangements. The LP/GP structure became the global standard because of its flexibility. But the model has a fundamental characteristic that is increasingly difficult to reconcile with the demands of modern capital markets: it is not a formal finan- cial entity. It is a private agreement between parties, with variable levels of transparency and verifiability. That design made sense in an era when institutional investors accepted manager discretion, regulatory supervision was light, and offshore structures were unquestioned. Today, those conditions no longer hold. The structural weaknesses of the LP/GP model have become increasingly visible. Governance is private and non-institutional. Transparency depends on dis- cretionary reporting. Economic substance is frequent- ly artificial, relying on nominee directors and resident agents. Audit and traceability are partial, with no verifi- able digital record. Administrative costs accumulate across layers of entities that exist on paper rather than in practice. None of these characteristics reflect the operational and reputational standards that institu- tional investors, banks and regulators now expect.
The market accepted this legal fiction for decades because it was functional: it allowed capital to move quickly, with low friction and limited regulatory inter- ference. But that equilibrium has broken. Structures built solely on private contracts and nominal sub- stance are no longer a competitive advantage. They have become a point of structural risk. Private capital can no longer depend on the fiction – it needs real infrastructure. Tokenisation as the natural evolution of private fund structures Tokenisation is not a cryptocurrency trend. It is not a technical accessory grafted onto existing fund struc- tures. It is, at its core, a legal and financial methodol- ogy for representing units of economic participation digitally, in a structured and verifiable way, within a formally authorised framework. The technology serves as the vehicle of registration and execution, but the foundation of tokenisation is regulatory, contractual and legal. In a tokenised fund, participations are issued under regulatory supervision. Investor rights do not arise solely from a private contract, but from the formal existence of a regulated vehicle. Transactions are traceable, verifiable and auditably persistent. Distribu- tions, valuations and capital contributions are record- ed digitally with timestamps. Governance is visible, accredited and not nominal. The fund becomes a real financial vehicle, not a private agreement between parties. This architecture represents a meaningful departure from purely contractual schemes traditionally used in private funds. Instead of relying exclusively on bilateral or multilateral agreements, tokenised funds structure investor participation through formally issued units, with pre-defined rules for subscription, transferabil- ity and redemption. For institutional investors, this translates into greater legal certainty, clearer govern- ance and operational efficiency, while maintaining full coherence with the principles of fund law and capital markets standards.
216 CHAMBERS.COM
Powered by FlippingBook