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FUND ADMINISTRATION SERVICES • TURNKEY PROGRAM • DAILY NAV • COMPLETE SOLUTION International Financial Administration (BVI) Limited Wattley Building 160 Main Street PO Box 4443 Road Town, Tortola British Virgin Islands Enquiries: Derek Adler +44 1753 705100 or dadler@ifina.com British Virgin Islands – United Kingdom – United States of America – Channel Islands – Luxembourg – Switzerland
Entering the Chinese dragon via the sunny shores of the BVI… <strong>The</strong> BVI is offering investors in China a tax-neutral base from which to operate investment vehicles, writes Phyllis Feinberg, while at the same time reducing the danger of any legal issues ending up in United States or Chinese courts. <strong>The</strong> BVI’s lawyers are also making use of special purpose acquisition vehicles for venturing forth, over the Great Wall and beyond… Which country is the second largest investor in China, after Hong Kong? <strong>The</strong> United States or another Asian country probably comes to mind first. But no, actually it’s the British Virgin Islands. How so? Besides providing an offshore jurisdiction for mutual <strong>fund</strong>s and <strong>hedge</strong> <strong>fund</strong>s, the British Virgin Islands has become the destination of choice for companies setting up joint ventures with ChiChinese companies. TAX NEUTRALITY “A A country has to be tax-neutral, so cash can flow through without tax issues,” explains Robert Briant, m a n a g i n g partner of Conyers, Dill and Pearman. <strong>The</strong> British Virgin Islands is the choice for that and the English law system, where the House of Lords is the ultimate court of appeal, not United States or Chinese courts, has also boosted the British Virgin Islands as a jurisdiction of choice for offshore joint ventures, including many with China. “British Virgin Islands companies are big in China,” adds Briant. “It’s become the jurisdiction of choice for joint ventures between Chinese and US companies.” He says the business really began to take off about five years ago. <strong>The</strong> interest in China and its opportunities is clearly worldwide, and having structures available in the British Virgin Islands might come at just the right time for China’s domestic investor market, if the findings of a Pricewaterhouse- Coopers study continue to develop in the future. <strong>The</strong> study of distributors Chiang Hsien, Guotai Junan Allianz FM of investment products found respondents were “optimistic about future changes (in China) that will create demand for a host of new products, including seg- BEYOND THE GREAT WALL “We’re seeing more people looking globally into the ‘frontier markets niche’ including Sub-Saharan Africa and emerging Eastern Europe nations — one step beyond emerging markets,” says Peter O’Connell, managing director at Conifer (pictured, next page). “<strong>The</strong>se are the new emerging markets.” Some of the <strong>fund</strong>s are listed on foreign stock exchanges, such as those in Syria and Ghana, O’Connell points out. For some, the prices are obtained from a THE BVI AND CHINA private equity in Far East Asia has been popular, “which reflects the wealth growth in Asia.” “Any place you have hot markets you’ll see <strong>hedge</strong> <strong>fund</strong>s,” he adds, including investments in precious metals and natural resources. HYBRID PRIVATE EQUITY Hedge <strong>fund</strong>s investing in private equity is arguably less exotic, but nevertheless a trend. “We’re seeing the convergence of private equity and <strong>hedge</strong> <strong>fund</strong>s,” says Conyers Dill and Pearman’s Rob Briant. “<strong>The</strong>y’re investing in illiquid assets and sometimes use sidepockets — if the client wants them the client gets them. We’re advising a lot on that.” Investing in private equity is the “biggest change” in <strong>hedge</strong> <strong>fund</strong> investments recently, according to Heidi de Vries, a partner with lawyers W a l k e r s ( p i c t u r e d , below). <strong>The</strong> side pocket s t r u c t u re has become very popular. “We set up <strong>fund</strong>s with side regated <strong>fund</strong>s, pocket structures; a few years ago it was not commonplace, but now most <strong>hedge</strong> qualified domestic <strong>fund</strong>s investing institutional investor-related in private equity products, discretionary portfolio are set up with side management and in the previously pockets as the structure non-tradeable share market,” the continues to reinvent itself,” report said. (To gauge respond- says de Vries. She thinks the ents’ optimism and future product private equity investing trend plans for China, see charts on page will continue for a while yet. “In S18 of this report.) the present state of the market Chiang Hsien, chief executive <strong>fund</strong>s are often officer of Guotai Junan Allianz B l o o m b e r g set up with Fund Management, concurs with markets terminal. “ T h e r e ’ s a certain the optimism of the PwC study’s a special list of brokers that threshold respondents and says China’s <strong>fund</strong> provides some asset classes,” of how industry has experienced “expo- O’Connell adds. Brazil/Russia/ much of nential growth in current years, India/China (BRIC) <strong>fund</strong>s are also the <strong>fund</strong> now with assets under manage- popular, says Briant. will be ment of over RMB3trn.” “<strong>The</strong>re’s been a ‘flavor of the invested Yet it is not just China in which month’ pattern,” says Ryan Geluk in private <strong>fund</strong>s and companies that are dom- of BDO Binder. equity to iciled in the British Virgin Islands He says that investing in what the are to be found investing. Eastern European real estate and comfort level www.<strong>hedge</strong><strong>fund</strong>sreview.com October 2007 | BRITISH VIRGIN ISLANDS SUPPLEMENT HEDGE FUNDS REVIEW | S15
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