The hedge fund centre on the move - Incisive Media

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