Service providers in the British Virgin Islands discuss the key issues facing the jurisdiction.

Simon Schilder, partner and head of the investment funds practice, Ogier
The BVI is a competitive and cost-effective jurisdiction for hedge funds, says Schilder. He believes the recently enacted Securities and Investment Business Act (SIBA) provides greater legal certainty for funds and promotes strong corporate governance while retaining the flexibility for which the BVI is known. He acknowledges the Cayman Islands’ position as the market leader for hedge fund business but says BVI has what it takes to compete. “The BVI and the Cayman Islands have strong regulations and a deep history in the hedge fund business. But it is quicker and cheaper to establish a fund in the BVI compared to the Cayman Islands or Luxembourg or Dublin while the regulations in the BVI also provide greater flexibility than other jurisdictions,” says Schilder. He admits the European Union’s alternative investment fund managers (AIFM) directive is a potential threat to the BVI. However, he believes the BVI will be able to meet the equivalency requirements of AIFM. “We have to wait and see what the final directive looks like but all indications are the Cayman Islands and the BVI will be able to meet the ‘third country’ requirements of the directive,” says Schilder.

Ross Munro, partner and head of the investment funds and regulatory practice, Harneys
SIBA has “fine-tuned” the regulatory framework for investment funds in the BVI to bring it into line with international standards, says Munro. “SIBA is positive in the sense that it codifies certain regulatory requirements which were previously enforced informally by the regulator. It is helpful to have all the requirements set out clearly in one piece of legislation,” he says. Munro believes the regulatory framework in the BVI compares favourably to the other major hedge fund jurisdictions. He highlights the need to maintain “the right balance” between being business friendly and appropriately regulated. “The jurisdiction needs to be well regulated and consistent with international standards but we also need to remain efficient, keep costs down to a minimum and ensure the regime has the level of flexibility the hedge industry needs. We have the right balance now, but it is something we have to remain focused on,” he says.

Tanis McDonald, director, KPMG
The BVI has struggled to attract business from the large asset managers because it is seen as a less mature jurisdiction than the Cayman Islands in hedge fund terms, says McDonald. “This is a lower-cost jurisdiction with fewer service providers and that means we are inevitably seen as a place for smaller managers,” she explains. SIBA has raised the regulatory standards in the BVI and should bring more credibility to the jurisdiction, McDonald adds. “SIBA has been well received,” she says. “There was a need to formalise some of the practices and policies that were previously enforced informally. SIBA does this and that in turn has helped improve the reputation and credibility of the jurisdiction internationally,” notes McDonald. She stresses the jurisdiction has a lot to offer hedge funds. “This is a cost-effective jurisdiction with flexible regulations. The BVI is also more economically and politically stable than many other offshore jurisdictions,” McDonald comments.

Daniel Cann, director, Folio Group
The BVI has emerged from the global economic downturn in “pretty good shape,” says Cann. “The BVI did not overstretch ourselves or become saturated during the boom years. Companies here may not be doing as well as they did in the past but no one has shut their doors since Fortis in 2008,” says Cann. He is quick to note the BVI economy has proved to be more stable than the Cayman Islands over recent years. “The BVI is financially very stable because of the 500,000 companies based here that all pay annual fees. No other offshore jurisdiction has such a reliable source of revenue.” Cann has seen a positive trend in 2010 as “new money is flowing into existing funds and there is more activity on the start-up side”.

Robert Briant, partner, Conyers Dill & Pearman
“Lots of smoke and no fire,” says Briant when asked if hedge funds are re-domiciling to onshore jurisdictions like Ireland and Luxembourg in expectation of the EU’s proposed AIFM directive. He says Conyers has not been instructed by any of its clients to re-domicile funds from the Cayman Islands or the BVI to onshore locations. “We have been encouraged by what we have heard so far with regard to the equivalency criteria for third countries. The BVI should not have any difficulty in meeting those requirements,” says Briant. He believes the BVI’s main challenge is to establish itself as a viable alternative to Cayman for hedge fund business. “The BVI has a very strong regulatory and legislative framework which compares favourably to Cayman. However, the perception is that Cayman is the natural choice for hedge fund domiciliation. This is something we have to address,” states Briant.

Mara Alido Spencer, managing director, ACE Fund Services
“The hedge industry has recovered over the past 12 months. There are more managers looking to set up new funds in 2010 than at any point over the past three years. We are cautiously optimistic,” says Spencer. ACE has worked with managers to establish a range of different structures in recent months, including equity funds and macro vehicles investing in futures and currencies. The impetus has come from the US and Europe as well as emerging markets, including Latin America. Spencer believes the Latin American market could be a significant driver of growth in the hedge fund industry over the coming years. “The Latin American market is growing fast and there is huge potential there. The hedge fund industry in Latin America will benefit from the moves to modernise the financial regulations,” she says. The BVI is well placed to support Latin American hedge funds, adds Spencer. “SIBA is a very positive development. The BVI offers a strong and flexible platform for international hedge fund managers,” she notes.

Sherri Ortiz, executive director, BVI International Financial Centre (IFC)
The IFC is ramping up its efforts to promote the BVI as a premier jurisdiction for hedge fund domiciliation, says Ortiz. The IFC cooled its promotional efforts while SIBA was being finalised and enacted. “We did not want to start a big push while there was uncertainty about the regulations,” says Ortiz. With SIBA in place the IFC is pressing with its mission to spread the word about the BVI funds industry. The BVI hosted a conference in New York in September and has plans to expand its promotional efforts in Europe, Asia and Latin America. “The BVI has to get the word out more. We offer a modern and innovative legislative framework for hedge funds. The BVI is on a par with Cayman in terms of regulations and capabilities. However, Cayman has over the years established itself as the number one offshore funds domicile. We do not expect to dethrone Cayman from that position, but we do need to make it clear the BVI is a viable and unparalleled option for hedge funds,” says Ortiz.