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JURISDICTION FOCUS Why there’s a buzz around the BVI – the bee’s kn As the BVI benefits from having all the major offshore law firms present, its introduction of new <strong>fund</strong> laws and a regulator actively involved with the local practitioner industry is a key to its ongoing success, the <strong>fund</strong> services industry tells Phyllis Feinberg. Robert Briant, a young lawyer with Conyers Dill & Pearman in 1998, went to the British Virgin Islands to fill in so the one lawyer who worked in that office could take a two-week vacation. Today, he’s the managing partner in charge of 10 lawyers in Conyers Dill & Pearman’s British Virgin Islands office. “I personally saw how little legal representation there was down here,” says Briant. “<strong>The</strong>re were 450,000 companies there and none of the other offshore ‘magic circle’ offshore law firms had an office here.” (<strong>The</strong> ‘magic circle’ refers to a group of large and powerful law firms in the City of London). VIRTUOUS CIRCLE Now all of the so-called offshore ‘magic circle’ law firms — Maples & Calder, Walkers, Appleby and Ogier, in addition to Conyers Dill & Pearman — have offices in the BVI with thriving practices. Ogier was the last to solidify its presence, when it acquired W. Smith on 1 February 2007. “Essentially Ogier wanted to be in every key offshore financial market and the only one that they weren’t in was the British Virgin Islands,” says Simon S c h i l d e r, the partner now in charge of the corporate and <strong>fund</strong>s practice at Ogier in the Robert Briant Conyers, Dill & Pearman British Virgin Islands. “With all the major international players in the offshore market now in every key market, Ogier could see where the British Virgin Islands market was going,” he adds. And how did it find W. Smith? “We’ve been ‘best friends’ with them for a long time,” says Schilder. “We had close relations with them for a long time and anything that they did in the British Virgin Islands where they needed help in the BVI they got us involved in the work.” Negotiations for the actual merger didn’t begin until last year. “<strong>The</strong> negotiations went very smoothly and the merger has really only formally cemented our existing relationship with them,” Schilder says. “<strong>The</strong> key markets where work is going now in the Caribbean are the BVI and the Cayman Islands,” according to Schilder. “It comes down to the fact that the BVI as a jurisdiction is developing all of the time and coming on in leaps and bounds.” Robert McIntyre, managing partner of Maples and Calder, in the BVI, which moved into the BVI in September 2004, when it purchased Smith-Hughes Raworth & McKenzie, says “it’s been part of a trend over the last few years. All of the multi-jurisdictional offshore jurisdiction law firms have come to the BVI because they think it’s a good place to be.” RUBICON MOMENT “<strong>The</strong> British Virgin Islands crossed a threshold several years ago when it stopped being lumped together with many of the other smaller offshore jurisdictions in the Caribbean and was talked about as an important offshore destination in the same way as Bermuda and the Cayman Islands,” he adds. Robert McIntyre says that Maples and Calder has doubled the number of lawyers it has in its BVI office since it bought Smith- Hughes in 2004. <strong>The</strong>re are very good reasons why the BVI has become a major offshore financial center, second only to the Cayman Islands in the number of <strong>hedge</strong> <strong>fund</strong>s domiciled here, according to Briant. MOMENTS OF CLARITY “<strong>The</strong>ir regulatory system and corporate laws are the best and easiest to understand in the offshore world,” he says. In addition, the BVI “<strong>The</strong> pie is growing faster than it can be sliced up. <strong>The</strong>re is so much more work coming to the jurisdiction. It is transforming from a purely incorporation jurisdiction to a transactional jurisdiction.” Robert Briant, Conyers, Dill & Pearman Business Companies Act passed in 2004, which is based on the Delaware corporate law “is the most efficient piece of corporate legislation out there,” adds Conyers Dill & Pearman’s Briant “<strong>The</strong>y have momentum in the British Virgin Islands.” <strong>The</strong>re are now 800,000 companies domiciled in the British Virgin Islands and about 2400 <strong>hedge</strong> <strong>fund</strong>s. “<strong>The</strong>re’s a lot of business coming here and we’re all competing for it,” Briant says. “But the pie is growing faster than it can be sliced up. <strong>The</strong>re’s so much more work coming to the jurisdiction. It’s transforming it from a purely incorporation jurisdiction to a transactional jurisdiction.” Every law firm on the island is hiring, according to Briant. <strong>The</strong> British Virgin Islands is attracting businesses from all over the world now. “People in multiple jurisdictions need to structure transactions in a neutral jurisdiction,” he says. TAX NEUTRALITY Hedge <strong>fund</strong>s may have United States managers, but also European and Australian investors are in the <strong>fund</strong>. <strong>The</strong>y need to set it up in a neutral jurisdiction. “<strong>The</strong>re’s no tax on an intermediate vehicle here and the laws are based on the English legal system with the House of Lords being the ultimate court of appeal,” Briant says. <strong>The</strong> importance of a BVI presence is also demonstrated by auditor KPMG, which returned to BVI in 2005 after having its former British Virgin Islands unit leave the KPMG network and join Baker Tilly in 2003. “Our return was client-driven,” says Tanis McDonald, senior manager. “BVI has an important role in global corporate structures.” Moreover, after the firm left the KPMG network, “we knew we needed to be back in the British Virgin Islands so we could continue to provide a seamless service to our clients,” she adds. “Across the board everyone wanted us back here — our <strong>fund</strong> clients wanted us back and corporate clients wanted us, too. “In the last year our client base has expanded quite rapidly (in BVI). <strong>The</strong> majority of this new business is <strong>hedge</strong> <strong>fund</strong>-related,” she says. In addition, two major <strong>fund</strong> administrators also opened offices in BVI in the last year. Conifer, the San Francisco-based <strong>fund</strong> administrator, opened an office and Fortis Prime Fund Solutions, a subsidiary of the financial services giant, bought BVI-based Hedge Fund Services Co., creating an instant presence on the island. OFFSHORE CENTRE “BVI is coming into its own as an offshore financial center,” says Peter O’Connell, managing director and head of Conifer’s BVI office. “We wouldn’t have moved to the British Virgin Islands unless we were sure it was a major offshore center for financial services firms. Now it’s maintaining a solid second place to the Cayman Islands in the number of <strong>hedge</strong> <strong>fund</strong>s here, and I think the gap will narrow further.” “<strong>The</strong>re are several ways to grow and we chose to do it through acquisition,” says Clayton Burton, managing director, Fortis. <strong>The</strong> firm liked the way that HFS was structured — “they had a nice book of business,” he says — “and we could incorporate it into our systems and business processes.” HFS had about $4bn in assets under administration and 70 <strong>fund</strong> clients which could be easily added to Fortis’s worldwide $280bn in S4 | BRITISH VIRGIN ISLANDS SUPPLEMENT HEDGE FUNDS REVIEW | October 2007 www.<strong>hedge</strong><strong>fund</strong>sreview.com
assets under administration and 750 <strong>hedge</strong> <strong>fund</strong> clients. “We’re very excited to be down there,” says Burton “<strong>The</strong>re are a lot of large <strong>fund</strong>s down there and it’s a lower cost environment for registration and the cost of services.” GOVERNMENTAL SUPPORT “BVI has really taken off in the last couple of years,” says Heidi de Vries, managing partner of Walkers’ BVI office. She points out that the BVI Business Companies Act which was enacted in 2005 “is very flexible and innovative — <strong>fund</strong>s can be structured in a flexible way.” She also points to the BVI Financial Services Commission being granted full membership to IOSCO as providing an acknowledgement that BVI regulatory standards are on a par with the rest of the world. And she points to the arrival of major service providers—including all the major offshore law firms and all the major accounting firms, as well as Fortis and Conifer, as giving a strong push to BVI’s offshore business. “<strong>The</strong> infrastructure here has improved a lot,” she says. “<strong>The</strong>y are up to speed on new regulations and as the jurisdiction continues to grow and as the next generation of <strong>fund</strong>s comes, they have laws to deal with it in a responsive way.” “We always thought BVI was well regulated and respected,” says William Harris of Folio Administrators. “<strong>The</strong>re’s no exemptive legislation like there is in the Cayman Islands,” he adds. “We’re also seeing the infrastructure of the island getting much stronger,” says Folio Administrators’ Daniel Cann (pictured, page S4). He also points out that, because of the weakness of the dollar, certain offshore domiciles in Europe “are twice as expensive as BVI. Also the BVI is “less rigid than other offshore jurisdictions.” “<strong>The</strong> territory has matured from being a traditional start-up center to one which is primarily used for the launch of new <strong>fund</strong>s by institutional managers,” says Kieron O’Rourke, partner at Harneys’ <strong>fund</strong>s practice in the BVI. “<strong>The</strong> BVI is a strong second to Cayman for the domicile of <strong>hedge</strong> <strong>fund</strong>s,” he says. Ogier’s Schilder adds that as it is slightly cheaper to set up and maintain <strong>fund</strong>s in the BVI than in Cayman, this cost saving is often an important consideration for start-up investment managers. Schilder adds that the BVI is for some United States counsel the preferred offshore domicile. “One firm we work with likes BVI because of the ease with which you can amend a <strong>fund</strong>’s constitutional documents – its memornadum and Articles of Association – in order to create additional share classes,” he says. “To amend a <strong>fund</strong>’s memorandum and Articles of Association and so create a new share class here you need only the approval of directors, but in Cayman you also need shareholder approval. <strong>The</strong>re are some US lawyers who prefer the using the British Virgin Islands for this very reason.” On a more mundane note, he notes that, as the BVI sits in the same time zone as the United States east coast, it makes doing business easy. In a note to clients on the virtues of the BVI, Walkers says, “as a British Overseas Territory, the BVI offers all the security and stability traditionally associated with the British flag. <strong>The</strong> territory is responsible for its own internal self-government. <strong>The</strong> BVI has an independent legal and judicial system based on English Common Law, with a right of final appeal to the Privy Council in London.” It goes on to say that while the UK remains responsible for the British Virgin Islands’ external affairs, defense, internal security and the courts, “based upon BVI’s integrity and responsiveness to the interests of the financial community, it has become the only Caribbean Overseas Territory to which the British Government has devolved responsibility for developing and managing its own financial services industry.” <strong>The</strong> note also points out that “BVI offers state of the art telecommunications, infrastructure and support services, and a well-trained management and workforce. <strong>The</strong> BVI enjoys one of the world’s highest literacy rates at 98% and has developed a wide range of specialised programs to train its people in financial service skills,” Walkers says. In a presentation he made to potential BVI companies, Mark Chapman, partner at Deloitte, said that BVI “is an island paradise…but more…it has modern laws, a tax-free environment and sound regulatory procedures.” RELEASING THE BURDEN Chapman also points out a “close and effective working relationships between the financial industry and the BVI regulatory authorities,” and “efficient and reasonable government regulation and the absence of burdensome bureaucracy.” Chapman, in an interview, also said that more and more investment managers “are physically locating here. If you’ve got a manager who wants to demonstrate they are offshore, there’s only one way to do it — move their offices here.” He adds that the managers “see the advantage of operating a management company out of here.” In his presentation, Chapman points out other things that favor BVI, including “attorneys, bankers, administrators and accountants with diverse expertise drawn from around the world; no restriction on the amount of money which may be brought into or taken out of the BVI and companies can easily be listed on stock exchanges in other countries such as Luxembourg, Ireland or Bermuda.” He also pointed to the BVI Business Companies Act (BCA) and said that “the concept of capital has been replaced with rules which determine when a company may make distributions. “<strong>The</strong> Business Companies Act acknowledges that the concept of preserving share capital is an archaic method of protecting creditors and shareholders.” Deloitte’s Chapman also points to the power that the Act gives to directors of British Virgin Islands- registered companies. “Directors of a British Virgin Islands company can be given the power to amend its Memorandum JURISDICTION FOCUS nees when it comes to domiciling <strong>hedge</strong> <strong>fund</strong>s Mark Chapman Deloitte Tanis McDonald KPMG “We always thought BVI was well regulated and respected. <strong>The</strong>re is no expemptive legislation like there is in the Cayman Islands. We’re also seeing the infrastructure of the island getting much stronger.” Daniel Cann, Folio Administrators Robert McIntyre Maples & Calder Calum McKenzie Folio Aministrators Simon Schilder Ogier and Articles of Association and to vary shareholders’ rights without requiring shareholders’ consent,” he says. <strong>The</strong> benefits of these provisions are that “this avoids time delays and legal costs when restructuring is required,” and points out that “other jurisdictions require shareholder consent.” SEE-THROUGH ADVANTAGE Although some firms like offshore jurisdictions because of their supposed secrecy, Robert Briant says that BVI supports transparency in its laws. <strong>The</strong> type of secrecy associated with a country like Switzerland is not here, and Briant believes it helps boost the reputation of the British Virgin Islands. “A proper request (to appropriate authorities) concerning criminal conduct will get information from the British Virgin Islands,” says Briant. “<strong>The</strong> company structures here are not about tax evasion or even tax avoidance.” Moreover, he points out, “there is a tax information exchange agreement between the British Virgin Islands and the United States and the British Virgin Islands is committed to entering into them with all OECD member countries.” Briant says that while some members of the US Senate are proposing laws to “stop tax haven abuse” which are aimed at places like the British Virgin Islands and Bermuda, they are really not aware that there is reasonable transparency in the laws. He adds “there are jurisdictions where people can hide assets and which won’t give out information to authorities. “This is not one of them.” www.<strong>hedge</strong><strong>fund</strong>sreview.com October 2007 | BRITISH VIRGIN ISLANDS SUPPLEMENT HEDGE FUNDS REVIEW | S5
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The hedge fund centre on the move - Incisive Media

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