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Derek Adler, director, Ifina

Competing in the global marketplace

By Derek Adler - Despite the downturn in the international fund industry stemming from the recent financial crisis, all the indications are that the British Virgin Islands have weathered the storm as well as if not better than its main competitor jurisdictions. In addition, the BVI has benefited from its diversified business model and a range of other successful financial activities including company incorporation and captive insurance.

The BVI is the world’s second-ranking offshore fund domicile, but members of the industry do not see the islands’ goal as chasing rival jurisdictions or numerical targets. Instead it is to build on the capabilities and expertise that have brought it business from fund promoters throughout the world by improving even further the quality of service offered in the BVI and the range and flexibility of available products.

An area in which the BVI could take a leaf out of Cayman’s book is by offering an exempt manager product, which would offer new fund management firms the opportunity to be regulated at an affordable cost during the tricky early days when they are getting their business up and running.

This would be particularly helpful for Ifina, which together with a group of partners has established the Primary Development Fund in Cayman, offering newcomers to the industry a package of outsourced services around an umbrella fund structure. To be able to offer this package together with exempt manager status in the BVI would be of huge benefit to managers that would like the opportunity to launch their business within a regulated framework.

One of the BVI’s existing benefits for new managers is an advantageous cost base, especially in a market where managers are taking longer to raise capital and face increased expenditure in areas such as compliance and reporting. While it’s important not to set fees too low, which might risk cheapening the product, there is a happy medium, especially when set alongside the BVI’s reputation for sound regulation and effective oversight of its financial sector.

Good relations and close co-operation between government authorities including regulators and the private sector is an essential attribute for jurisdictions aiming to grow and to develop their international profile. For example, the BVI International Financial Centre has played a central role in working with industry professionals to spread the islands’ message around the world.

These relationships can only become more important in the future amid an increase in international regulation, including transparency requirements, and ever-growing competition between financial centres keen to increase their share of fund industry activity. In this respect, an ongoing dialogue between practitioners and regulators on the development of legislation and practical aspects of supervisory oversight can pay dividends by ensuring that BVI is equipped to provide products and services attuned to the requirements of the industry.

The passage last year of the long-awaited Securities and Investment Business Act was helpful in bringing the BVI’s fund law up to date and enshrining in regulatory requirements procedures and processes that were already part of day-to-day practice in the jurisdiction, emphasising the islands’ commitment to global standards through its membership of Iosco.

But the need for fine-tuning of the legislative framework is an ongoing process that is never complete, and over the coming months and years industry professionals will continue to examine how the legal environment for funds in the BVI can be improved further to enhance its competitiveness in the international marketplace.

Derek Adler is a director of Ifina (UK)

Click here to download a copy of the Hedgeweek Special Report: BVI Hedge Fund Services 2011


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