The Isle of Man's experience in servicing what are today known as alternative funds goes back at least two decades, to the late 1980s, when the island was already carving out a niche including hedge funds and what were then considered non-standard types of investment. Over the years the island's expertise and capacity have grown considerably and today encompass big administrators that are global players and are capable of servicing very large hedge funds, such as HSBC and Fortis.
As the level and quality of service offered on the island has increased, it has also seen growth in ancillary services such as law firms and auditors essential to the development of the industry. In addition, the Isle of Man has benefited from the creation nearly seven years ago of the Experienced Investor Fund, a vehicle that has proved particularly well suited to hedge fund structures because of the opportunity to use a prime broker.
Strong growth in the number of EIFs being established testifies to the demand in the market for a suitable Isle of Man-domiciled fund vehicle. At the same time, there is also significant growth in the number of overseas funds, mostly incorporated in the Cayman Islands or British Virgin Islands, which are being administered on the island. These funds are carved out of regulation in the Isle of Man, so they are only subject to regulation in a single jurisdiction. This makes it easier for funds that are dissatisfied with the service they are receiving in another jurisdiction to move their administration mandates to the island.
The principal attraction of the Isle of Man is the quality of service offered by providers here. It is an attribute particularly appreciated by managers of start-up alternative funds that may struggle to find a comparable level of individual attention at a competitive price elsewhere.
Historically this has been an important servicing jurisdiction for start-up funds, because it can deal with smaller funds on a more cost-effective basis than many of its rivals.
Whereas the standard level of administration fees may be similar as a proportion of assets, the minimum charges imposed by service providers on the island may be half or less of those required by administrators in a centre such as Dublin. However, the Isle of Man is also attracting larger funds from competitors as well, such as the growing number of closed-ended funds that are seeking listings on London's Alternative Investment Market.
This growth in business has not happened by chance. It is due in considerable part to the efforts made by the government and by the Fund Management Association over a number of years to raise the island's profile in the market. As a result of repeated contacts with the big London law firms that advise promoters on the establishment of hedge funds, we have noticed a significant change in attitude and level of awareness over the years. Whereas in 1999 it was necessary to explain to people where the Isle of Man was, and why it should be considered for the domicile and servicing of hedge funds, today many of the lawyers we meet in London are already using the island. There is no doubt about either the level of knowledge among key gatekeepers to the fund industry, nor about the surge in business coming to the island.
By Mike Simpson - partner responsible for investment management with PricewaterhouseCoopers in the Isle of Man