Untangling the Gordian Knot
Regulatory and investor pressure have drastically altered the hedge fund industry in recent years. With managers increasingly looking for fund administrators to provide more middle-office and value-added services, whilst at the same time squeezing them on fees, the situation has become a Gordian Knot. Administrators must find ways to remain relevant, attract new clients, and continue to build revenues at a time when everyone is adjusting to FATCA, AIFMD, and shortly Common Reporting Standards.
Folio is one of the BVI's most recognised independent fund administrators and whilst the group is glad that the BVI is evolving its fund product range, it is cognisant of the fact that regulatory and cost pressures are holding people back from launching funds.
"I don't think it's any different in any other offshore jurisdiction," says Calum McKenzie (pictured), Director, Folio Corporate Services Limited. "Our large clients are still happy with the situation here in the BVI, but what is more challenging is getting new managers to launch fund products.
"The Approved Manager has been the biggest success story of the last few years. Statistics would show that it has proven popular in terms of the number of registrations. The question mark that goes against that is how many of those were full licensed investment managers that decided to switch to take advantage of the more regulatory appropriate structure for their offering."
Introducing the BVI Approved Manager regime, and more recently the BVI Incubator and Approved Fund products, is evidence that the BVI, at a jurisdictional level, is attempting to "think outside the box" and untangle the Gordian Knot.
"Previously, we had limited alternative products to offer clients: they either had a BVI private or professional fund or a closed-ended vehicle. The incubator and approved fund provide a more regulatory appropriate product for start-up managers.
"Also, with the ability to offer the Approved Manager, we are now starting to reclaim that space," says McKenzie.
"Despite having almost 2,000 funds registered in BVI I believe the BVI still needs to address the perception issue that we are essentially an M&A domicile. We need to shout loudly that BVI is an excellent funds domicile and explain more clearly to people why BVI should be foremost in their minds. For example, people can realise significant cost savings, relative to competitor jurisdictions, by establishing their structure in the BVI. We need more investors to understand the virtues of the BVI, which in turn might help to attract more managers," notes McKenzie.
In other words, when managers speak to prospective investors, the question put to them shouldn't be, `Why are you choosing the BVI?' but rather `Why aren't you choosing the BVI?'
McKenzie is a Team Leader for Team BVI, part of the marketing machine at BVI Finance. Team BVI is conducting a lot of planning into how the jurisdiction can further enhance its funds industry. He confirms that the BVI is hoping to introduce a new Limited Partnership Act at the end of Q1 or early Q2.
"The Partnership Act in the BVI is in need of an overhaul. A lot of US managers structure their offshore funds as LPs, and we aim to have state-of-the-art partnership legislation that will allow us to appeal even more to US managers," concludes McKenzie.
If this happens, it will further loosen the Gordian Knot and help the BVI's fund administration community expand its client base.