The hedge fund centre on the move - Incisive Media

More documents

Recommendations

Info

PROFILE: FORTIS Fortis’ never-ending BVI story Fortis Prime Fund Solutions has made its mark in the BVI after buying Hedge Fund Services in 2006, but, as managing director Clayton Burton tells Phyllis Feinberg, Fortis’ story in the BVI does not end there and it has many chapters still to write... Fortis Prime Fund Solutions, a unit of the mammoth European financial services company, Fortis, started providing <strong>hedge</strong> <strong>fund</strong> administration and ancillary services in 1969, to what is now the oldest surviving <strong>fund</strong> of <strong>hedge</strong> <strong>fund</strong>s (FoHF). So, it is natural to understand why Fortis, which already services offshore <strong>hedge</strong> <strong>fund</strong>s in the Cayman Islands and Dublin, would want a piece of the rapidly growing <strong>hedge</strong> <strong>fund</strong>s business in the British Virgin Islands (BVI). In March 2006, Fortis acquired Hedge Fund Services (BVI) Ltd in the BVI, a company which had $4bn in assets under administration for 70 <strong>fund</strong> clients, compared to Fortis’ $260bn in assets under administration for 1600 <strong>fund</strong> clients globally. “It was really a strategic acquisition because Hedge Fund Services had the kind of clients we were looking for,” says Clayton Burton, managing director of Fortis, including the full range of <strong>hedge</strong> <strong>fund</strong>s and <strong>fund</strong>s of <strong>hedge</strong> <strong>fund</strong>s. “HFS had a high-quality staff and most <strong>hedge</strong> <strong>fund</strong> administrators who have opened offices in the British Virgin Islands have had good business,” says Burton. “As our business grows we will continue to add more staff.” <strong>The</strong>re are 25 now. GRAND AMBITIONS “We felt that we could immediately become a major market player in the British Virgin Islands, using Fortis’ successful formula, with a talented staff of accountants and their support team,” Burton adds. Mark Lancaster, director, new business at Prime Fund Solutions says that Fortis chose to buy Hedge Fund Services rather than start its own operation from the ground up because “maintenance of capacity is the key issue in the marketplace. “In order to be successful you have to take advantage of all opportunities,” Lancaster says. In the case of British Virgin Islands, Hedge Fund Services was a strong firm which Fortis could acquire and grow with. EXPANSION PLANS Fortis plans on doubling the size of its BVI business within the next two years and it is already constructing a new building to house its operations. “<strong>The</strong> facility would allow us to double our staff,” says Burton. He also points out that costs for such things as infrastructure development, lawyers and auditors are cheaper in the British Virgin Islands than they are in the Cayman Islands and Bermuda. Fortis’ plan is to “double revenues and assets under administration,” according to Burton, in the next two years. “Fortis BVI should be very appealing to someone starting a <strong>hedge</strong> <strong>fund</strong> or a <strong>fund</strong> of <strong>hedge</strong> <strong>fund</strong>s,” he says. Burton says its British Virgin Islands business should be as profitable as its Cayman Islands operations, but not as profitable as operations in Luxembourg or Dublin. “Funds in the Western Hemisphere are more complex,” Burton says. “US <strong>hedge</strong> <strong>fund</strong> managers are very aggressive in the types of securities they trade and our costs are somewhat higher in the Americas region,” he adds. GLOBAL CONSOLIDATION Fortis has consolidated the BVI <strong>fund</strong>s onto its global IT platform. Fortis does round-the-clock processing of data in each global region, which allows efficient reporting for their clients. It can provide calculation of net asset value on a daily, weekly, monthly or custom basis and within any agreed-upon deadline. It also maintains full multi-currency accounting records. Fortis Prime Fund Solutions provides more services than basic <strong>fund</strong> administration. For example, Fortis can also help <strong>fund</strong>s’ preparation for the audit process and in the preparing of interim and annual financial statements. It also will collaborate with a <strong>fund</strong>’s tax advisors for K1 tax reporting and PFIC reports for United States investors. INSTANT ACCESS To help <strong>fund</strong>s make the right investment decisions based on easily accessible information, Prime Fund Solutions has developed i-Fund Reporting. This is a web portal and financial warehouse for high-end investment <strong>fund</strong> organisations. i-Fund reporting provides aroundthe-clock, web-based access to an overview of investment portfolio data and e-reports, simplifying the information retrieval process. Fortis will soon offer i-Fund Investor, which gives investors access to financial reporting online, so they can get online statements, according to Lancaster. Fortis has developed a module through which an investor can make subscriptions and redemptions into the <strong>fund</strong>. Prime Fund Solutions also provides <strong>fund</strong>s of <strong>hedge</strong> <strong>fund</strong>s with global custody services including safekeeping and registration, clearing and settlement, and income and corporation action processing. In 2003, Fortis established a fully licensed, dedicated bank, Fortis Prime Fund Solutions Bank (Ireland) Ltd., focused on its alternative investment clients, which is incorporated and regulated in Ireland. <strong>The</strong> bank is a 100% owned subsidiary of Fortis Bank and has access to the parent bank’s AA- rated balance sheet. <strong>The</strong>refore, as part of its services to <strong>hedge</strong> <strong>fund</strong>s and <strong>fund</strong>s of <strong>fund</strong>s, Fortis can provide both groups with bank accounts. For FoHFs, it provides money in the form of a straightforward cash overdraft facility by using portfolio holdings as collateral. Fortis also offers liquidity/bridge financing to FoFs to cover mismatches in timing of underlying portfolio redemptions/subscriptions, so the <strong>fund</strong>s may remain fully invested, facilitating investor liquidity. Prime Fund Solutions was the largest global administrator of FoHFs, with 869 <strong>fund</strong>s of <strong>hedge</strong> <strong>fund</strong>s clients, with $143bn in assets, according to a March 2007 tabulation by HedgeFund.Net. In breaking down Fortis’ <strong>fund</strong>s of <strong>fund</strong>s business, 55% of the total assets serviced came from <strong>fund</strong>s of <strong>fund</strong>s. <strong>The</strong> firm has $190bn in assets under custody and $14bn in outstanding credit facilities. For its <strong>fund</strong> of <strong>fund</strong>s clients Fortis provides access to investment in foreign exchange derivatives. PROVIDING BEYOND THE CALL For both <strong>hedge</strong> <strong>fund</strong>s and <strong>fund</strong>s of <strong>fund</strong>s, Prime Fund Solutions provides access to equity derivatives (and equity-linked structured products) and interest rate derivatives and other structured products. <strong>The</strong> structured products give investors the ability to take advantage of market opportunities that come out of their strategic plans. <strong>The</strong> leverage the firm provides gives investors the ability to have enhanced exposure to capitalise on a bullish view. <strong>The</strong> total return swaps, either levered or unlevered, allow investors to invest on an off-balance sheet basis, often offering regulatory or tax advantages. <strong>The</strong> warrants enable investors to invest on an off-balance sheet basis like swaps, with overlapping but different tax and regulatory characteristics and tax-related benefits. Its portable alpha product allows benchmark returns that can be enhanced by layering on an uncorrelated “alpha” return. S20 | BRITISH VIRGIN ISLANDS SUPPLEMENT HEDGE FUNDS REVIEW | October 2007 www.<strong>hedge</strong><strong>fund</strong>sreview.com
<strong>The</strong> BVI’s hard-nosed flexibility <strong>The</strong> BVI is the second largest domicile for <strong>hedge</strong> <strong>fund</strong>s, explains the BVI International Finance Centre’s COO, Sherri Ortiz. This is no matter of luck, she adds, but careful planning and appropriate collaboration between the private and public sectors to make and keep the BVI popular as a domicile on managers’ radar screens In the early 1980s, when the British Virgin Islands (BVI) launched itself as an offshore jurisdiction, all involved were hopeful of success. However, even the wildest of optimists among them would have been hard pressed to envisage the extraordinary growth the territory has achieved in this extremely competitive market. <strong>The</strong> BVI has long held the position as the leading offshore registry for international companies and within a generation the economy has risen to the extent where income per capita is approximately US$40,000 per annum. It is the leading offshore domicile for company registrations, with around 750,000 companies registered here since 1984. This is more than any other jurisdiction by far, and the figures for this year are set to match, if not exceed, those from last year which saw 65,000 new BVI Business Companies registered. Some would say that innovative and progressive legislation combined with the commercial approach to corporate governance and regulation have been the reason for this success, while others would cite the close collaboration between the public and private sectors. Success also relies on being able to react quickly to changing circumstances. As such, several pieces of legislation in the BVI have been revisited to ensure that they are relevant, effective and attractive to investors. A good example of this evolution in company legislation took place on 1 January 2006, when the Business Companies Act 2004, (BVI BC Act) replaced the longestablished International Business Companies (IBC) Act, the latter of which lay at the heart of the BVI’s development as a leading offshore jurisdiction. This new legislation has created a flexible, forward-looking, and in many ways, radical framework within which highly sophisticated companies can operate effectively. It maintains all of the benefits of the IBC Act, but removes some of the more old-fashioned provisions, while introducing a handful of additional provisions to make the BVI Business Company a more effective transactional vehicle. It encourages flexibility for directors and shareholders of BVI- registered companies while still retaining safeguards for creditors and minority shareholders. In Asia particularly, the BVI brand has become synonymous with the very concept of an offshore company. From international joint-ventures looking for a neutral – but legally secure –- home to smaller businesses eyeing the benefits of flexible structures and tax neutrality, the BVI is frequently the first point of call. <strong>The</strong> jurisdiction is currently ranked as the second biggest investor into China and many people report that, both there and in Hong Kong, rather than giving a rationale to use a BVI company, a rationale for not using a BVI company has to be provided. While this success in the Asian market has predominantly been as a result of its attractive products and services, the BVI has also been quick to recognise and seize opportunities. For example, it quickly recognised concern among investors brought about by the implications of Hong Kong’s transfer from Britain back to China in 1997 and having persuaded these investors to move their assets to the jurisdiction, the BVI Government ensured they stayed by enacting sound legislation and regulation. This talent for seizing and making the most of opportunities by providing the right supporting environment has not only proved successful in ensuring the BVI remain the dominant force in company registration, but has also brought about success in other sectors such as investment business, trusts and captive insurance. MUTUAL/HEDGE FUNDS <strong>The</strong> British Virgin Islands have developed a reputation as an “Where cost is a significant factor this obviously benefits the BVI and unquestionably makes it the most cost-effective jurisdiction for small-to-medium size managers to launch their <strong>fund</strong>s. However the BVI attracts <strong>hedge</strong> <strong>fund</strong>s of all sizes because of the ease of incorporation and the flexibility of the regulation.” Sherri Ortiz, BVI IFC attractive and established jurisdiction in which to domicile offshore <strong>fund</strong>s. With 2500 <strong>fund</strong>s now operating in or from within the jurisdiction, the BVI is the second largest domicile of <strong>hedge</strong> <strong>fund</strong>s, with approximately 10% of the global market share. <strong>The</strong> <strong>hedge</strong> <strong>fund</strong> industry has grown substantially since the introduction of the Mutual Funds Act 1996, which is the primary legislation governing the <strong>fund</strong>s industry in the BVI. <strong>The</strong> sector can draw upon the support of more than 500 managers and administrators licensed in the Territory to provide <strong>fund</strong> support services to both mutual and <strong>hedge</strong> <strong>fund</strong>s. <strong>The</strong> legislation provides for three categories of regulated <strong>fund</strong>s and it is this distinction between public, private and professional industry commentary <strong>fund</strong>s that is a core strength of the BVI and something which other jurisdictions have adopted, or intend to adopt. It allows a different approach to regulation, wherein a relevant level of regulation is applied to respective categories of <strong>fund</strong>s. As a result, the BVI have been able to achieve efficiency in regulation which facilitates the commercial reality of having a <strong>hedge</strong> <strong>fund</strong> up and running in a timely manner. In fact, the distinction has permitted an average turnaround time, for the recognition of a private or professional <strong>fund</strong>, of 48 hours, assuming the application is in order. In addition, a professional <strong>fund</strong> is permitted to commence business up to 14 days in advance of recognition being granted, thereby facilitating the launch of such a <strong>hedge</strong> <strong>fund</strong> immediately after incorporation. In the BVI it is also significantly less expensive to establish and maintain a <strong>fund</strong> in the BVI than in its competitor jurisdictions. Legal fees and organisational costs to establish equivalent <strong>fund</strong>s tend to be lower and the current annual <strong>fund</strong> and corporate registration fees are considerably less than the BVI’s main competitors. Where cost is a significant factor, this obviously benefits the BVI and unquestionably makes it the most cost-effective jurisdiction for smallto-medium size managers to launch their <strong>fund</strong>s. However, the BVI attracts <strong>hedge</strong> <strong>fund</strong>s of all sizes, because of the ease of incorporation and the flexibility of the regulation. As a result, the BVI has attracted some of the biggest names in the sector, further endorsing the maturity and attraction of the domicile on the world stage. Last year, Fortis Prime Fund Solutions, one of the world’s foremost <strong>hedge</strong> <strong>fund</strong> administrators, made a firm commitment to the British Virgin Islands through the acquisition of Hedge Funds Services (HFS), one of the principal administrators operating in the Territory with approximately $2bn in assets under administration. <strong>The</strong>n, in October, Jersey-based law firm Ogier, one of the largest offshore law firms in the world, announced their entry into the BVI through a merger with WSmiths, a BVI firm whose practice area focuses on investment <strong>fund</strong>s and www.<strong>hedge</strong><strong>fund</strong>sreview.com October 2007 | british virgin islands supplement <strong>hedge</strong> <strong>fund</strong>s review | S21
Page 1: THE VOICE OF THE ALTERNATIVE INVEST
Page 4 and 5: JURISDICTION FOCUS Why there’s a
Page 6: egulator in profile Wisdom through
Page 9 and 10: � � � � � � � � �
Page 11 and 12: REDUCING THE BURDEN Funds “are lo
Page 13 and 14: panies give managers a useful tool
Page 15 and 16: Entering the Chinese dragon via the
Page 17 and 18: VP Bank (BVI) Limited in cooperatio
Page 19: Notes from the cutting edge <strong
Page 23 and 24: The BVI in the bli

The hedge fund centre on the move - Incisive Media

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?