By Mara Spencer – Despite fund numbers remaining suppressed in the BVI, 2012 was actually a strong year for us. Not that there was an influx of new funds coming through the door, but rather that a number of our existing clients, who have been in business for a number of years and developed good track records, expanded their fund offering(s).
Looking ahead for 2013, there is good reason for the BVI to be optimistic. With the adoption of the new Approved Managers Regime there is now a simple fast track process enabling a fund manager’s licence to be obtained within seven days.
Along with the proven speed and efficiency of fund application legislation, this means that both funds and managers can now be formed and licenced in the BVI in a robust and secure jurisdiction within a timeframe and at a cost level that other jurisdictions simply cannot match.
Reviewing the expansion we have seen in 2012, we had a few commodity-focused fund managers launch new share classes for their strategy; and existing global strategy managers offering a second fund. The climate, unfortunately, remains tough for start-up managers, but I’ve seen a couple of things in recent times to suggest that it’s not all doom and gloom.
The common denominator linking successful managers has been an ability to perform steadily over the last couple of years – the fact that some have increased their number of share classes and offerings tells me that investors are more willing than ever to look at the bigger picture when it comes to hedge fund investing. They understand that taking a short-term view at a time when markets have been buffeted by geopolitical headwinds is counterproductive.
Consequently, we haven’t seen too many redemptions over the last couple of months. Investors today want good quality investments: that is, funds that are able to provide consistent returns on a long-term basis. They are not looking for large outperformance to the same extent they were in earlier years. Capital preservation is the order of the day.
Investors are also more focused than ever on determining their risk appetite for hedge funds. Some are happy to invest in volatile funds and are more willing to accommodate bigger drawdowns, others have a lower pain threshold. Investors are more resilient today but they are also more cautious. That’s why, if hedge funds have delivered consistent returns investors are quite happy to say to the manager ‘If you have something more to offer, we’ll consider further investment’.
Investors want assurances that they know what they’re investing in, that the fund is properly risk managed. They want to know that the investment manager is high calibre and that the independent third parties they use are also high calibre.
Increasingly, though, they want responsiveness: as an administrator you have to demonstrate this to shareholders. For managers, from a middle-office perspective we’re continuously improving our systems to help them deliver reports and forecasts to their investor. But for the investors themselves, because they are taking a more studious approach to fund investing, we as an administrator have to be responsive to any questions they have.
Given the combination of high quality, speed of set up, and cost effectiveness of the BVI offshore product we as a firm are highly optimistic for 2013 and beyond.