The hedge fund centre on the move - Incisive Media

<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