The hedge fund centre on the move - Incisive Media

REDUCING THE BURDEN
Funds “are looking to rely on their
administrators to deal with third
parties, such as custodians and
brokers, auditors, the regulator,”
she adds. “This way the managers
can concentrate on <strong>fund</strong> management
and don’t have to worry
about the administrative issue.”
<strong>The</strong> “value added,” she
explains, occurs when administrators
deal efficiently with regulatory,
shareholding reporting, and
other ancilliary issues in adition
to the mainstream administration
tasks.” Alido says, “sometimes a
small <strong>fund</strong> requires a lot of work,
while larger <strong>fund</strong>s can be relatively
straightforward.”
In particular, “if it’s a promoter’s
first <strong>fund</strong>, they will need more guidance
to set up the <strong>fund</strong>,” she says.
ATU has a core business of
medium-size <strong>fund</strong>s, according to
Alido. “We have start-ups from
$10m and up — we consider ourselves
to be a medium-size <strong>fund</strong>
administrator.”
She points out that “business
volumes are changing”, with some
larger administrators not wanting
any <strong>fund</strong>s with assets less than
$50m, or in some cases $300m.
“We focus on having the adequate
capacity to provide quality services.
We have recently invested in
new, cutting-edge software systems
for <strong>fund</strong> administration, which has
greatly increased our capacity to
take on more <strong>fund</strong>s and to deliver
an incredibly wide range of services,”
says Alido.
AN EASY ACT TO FOLLOW
<strong>The</strong> BVI Mutual Funds Act of 1996
is still the law that must be followed
when setting up and administering
a <strong>fund</strong>, although a new Securities
& Investment Act is now being
written by the BVI Financial Services
Commission and is expected
to take effect either in late 2007 or
early 2008.
<strong>The</strong> current Act provides for
three types of mutual <strong>fund</strong>s (all
<strong>fund</strong>s, including <strong>hedge</strong> <strong>fund</strong>s, are
referred to as mutual <strong>fund</strong>s for
purposes of the law): professional
<strong>fund</strong>s; private <strong>fund</strong>s and public
<strong>fund</strong>s. A private <strong>fund</strong> is a mutual
<strong>fund</strong> whose constitutional documents
specify that it will have no
more than 50 investors or that the
making of an invitation to subscribe
for or purchase shares is
made on a private basis.
A professional <strong>fund</strong>, by contrast,
is a mutual <strong>fund</strong> whose shares are
only made available to professional
investors who have a net worth of
more than $1m and the initial investment
by a majority of the investors
is not less than $100,000.
A public <strong>fund</strong> is a mutual <strong>fund</strong>
that is neither a private <strong>fund</strong> nor a
professional <strong>fund</strong> and may be sold
to retail investors in any increments.
A public <strong>fund</strong> must be registered
before it carries on business and may
not make an invitation to the public
to purchase shares unless they have
published a prospectus that has been
approved by and signed by the <strong>fund</strong>’s
directors and filed with the British
Virgin Islands’ Financial Services
Commission (FSC).
THE BOTTOM LINE
Blenheim’s Reddy says that it costs
about $25,000 to $50,000 to set up a
private or professional <strong>fund</strong>. For a
public <strong>fund</strong> that is one-quarter to
one-half million in size “the nature
of the offering governs the costs—
if they’re very big it costs more.”
According to William Harris, a
director of Folio Administrators,
the total cost to form and register
a <strong>fund</strong> in BVI is about $20,000 to
$30,000. <strong>The</strong> <strong>fund</strong> license is only
$350 and the management company
fee is $500.
In terms of administration fees,
“certain costs are standard whatever
the size of the <strong>fund</strong>,” says
ATU Fund Administrators’ Alido.
“<strong>The</strong>re’s an administration minimum
fee in most cases; a multishare
class <strong>fund</strong> can grow, it might
start the year at $50m and by the
end of the year be at $150m.”
Administrators “generally charge
minimum fees in addition to basis
points on the net assets of the <strong>fund</strong>,
the greater the discount on the different
layers because of economies
of scale,” she says.
“Getting registered for a properly
structured <strong>fund</strong> can be done
in 48 hours,” says Robert Briant,
managing partner, Conyers, Dill
and Pearman. He says that a <strong>fund</strong>
must submit an application form
to satisfy the test that the <strong>fund</strong> is a
private, professional or public <strong>fund</strong>
and make sure the administrators
and custodian are acceptable.
KNOW YOUR CUSTOMER
In terms of due diligence on clients,
the acronym “KYC” (know your
customer) is particularly important
in the BVI.
“KYC is important,” says Fortis’s
Burton. “We have to look at
the credentials of the investment
manager,” for which the firm uses
the World Check service to investigate.
We look at how they write
the offering memorandums and
the resumes of the portfolio man-
agers; if someone came from (a
major investment bank), it can
help.” <strong>The</strong> due diligence process
takes about two weeks, according
to Burton.
“If someone is using a small
prime broker and we don’t have
an electronic interface with them it
may take more time. But if it’s a US
company registered with the SEC,
it’s quicker.”
“We then package it (the due
diligence) and present to our compliance
committee in Brussels,”
says Fortis’s Burton, “and they go
through it. If it’s passed, our due
diligence is accepted.”
Conifer’s O’Connell says that “if
it’s a new <strong>fund</strong> or a transitioning
<strong>fund</strong> we require proof of identity.”
Conifer uses an external information
service provider to help with
personal references.
Since the majority of new <strong>fund</strong>s
are started by people from other
<strong>hedge</strong> <strong>fund</strong>s or merchant banks, “if
a person starting a <strong>fund</strong> has worked
for another financial services firm,
we can call the prime broker and
ask what someone’s like, to make
a quality assessment,” O’Connell
says. Obviously, “one wants to do
business with good people,” he adds.
“For offshore <strong>fund</strong>s know-yourcustomer
checks are part of the
service,” says O’Connell.
administration
administrators are there to help...
Calum McKenzie,
Folio Fund
Administrators
“Any BVI-based administrator and manager must
be licensed by the Financial Services Commission.
Between the FSC, the anti-money laundering laws
and a compliance association, there is a robust due
diligence environment here.”
Kay Reddy, Blenheim Trust (BVI) Limited (pictured below)
Mara Alido,
ATU
Adminisitrators
“<strong>The</strong> paper chase varies by
category of investor.” Moreover,
he points out, “the British Virgin
Islands has strong anti-money
laundering laws and is a quality
jurisdiction that has been doing
good quality know-your-customer
for a while.”
TURNING THE TABLES
He says another trend now is for
the people running the <strong>fund</strong>s or
allocating money to <strong>fund</strong>s “to check
us out seriously.”
O’Connell explains that the firm
has received a number of detailed
due diligence questionnaires from
potential clients and investors.
“We got an 18-page questionnaire
from a Swiss firm and were on a
phone call with them about it for
90 minutes,” he says.
“<strong>The</strong> onus is on licensed service
providers to do due diligence,” says
Blenheim’s Reddy.
“Any BVI-based administrator
and manager must be licensed by
the Financial Services Commission.
Between the Financial Services
Commission, the anti-money
laundering laws and a compliance
association, there is a robust due
diligence environment here.”
“Administrators have a greater
role connecting KYC information
than we have,” says Walkers
partner Heidi de Vries, “although
from a legal perspective we have to
do due diligence on clients as well.
Typical due diligence is know your
customer — know who the corporate
entities are, who the beneficiaries
are and adhering to the strict
money laundering laws.”
“We follow KYC closely,” says
Simon Schilder, partner at Ogier.
“<strong>The</strong>re are various things we are
required to hold, checks we must
make and information we must
gather. We probably have to go
through a lot more know your customer
hoops than onshore,” he adds.
DIRTY LAUNDRY?
Schilder too, points to the British
Virgin Islands’ strong anti-money
laundering laws. “Our laws are on
par with any other jurisdiction,
there is full and proper legislation
in place, with robust requirements
for due diligence,” he says.
Circle Partners’ Cova says its due
diligence is handled by its office
in the Netherlands, which does indepth
checks. “<strong>The</strong>y verify identity
and there is a screening on clients
and investors on ongoing basis,”
Circle Partners’ Cova says.
www.<strong>hedge</strong><strong>fund</strong>sreview.com October 2007 | british virgin islands supplement <strong>hedge</strong> <strong>fund</strong>s review | S11