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New regulation is a positive step

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Interview with Peter Todd (pictured) – “The BVI is still performing strongly. Despite fund numbers being down this year they’re starting to tail off now that the regulatory outlook here is clearer,” says Peter Todd, director, Drake Fund Advisors, an independent fund administrator that focuses on emerging markets.

Since 2009, fund numbers in the BVI have been declining. Professional funds are down from 1885 to around 1621, while private funds are down from 816 to 160 which, according to Todd, is more a reflection of the turmoil that followed the financial crisis as opposed to the BVI suffering any sort of personal crisis.

Part of the reason behind a contraction in fund numbers could also be in response to tightening regulation on the islands. Last March saw the application of the regulatory code to licensees under SIBA – Securities and Investment Business Act – requiring all funds to appoint a pre-approved compliance officer and submit fully audited accounts.

Says Todd: “This enhanced regulation and greater scrutiny of managers has led to a reduction in the number of funds, but I would suggest an improvement in the quality of funds.

“For us it’s been a good year, the number of funds under management has grown. We opened up a new office in Cape Town this year, and this has helped us attract emerging market-focused funds. Typically these are segregated portfolio funds with managers running two or three different strategies. Firm-wide AuA is now roughly USD600million.”

The Approved Managers Regulations introduced 10 December 2012 to ease the regulatory burden on smaller managers running open-ended funds with less than USD400million in total assets could act as a catalyst and reverse the slide in fund numbers going forward. Todd views these new regulations as a positive development for the BVI: “There were 26 new investment business licenses granted for Q1 and Q2 this year which suggests there are quite a few managers seeking recognition under SIBA.

“The BVI has formalised the whole closed-ended fund regulation and introduced a new light touch investment manager rule, which is good. We anticipate that the Approved Managers Regulations will lead to more manager-driven funds as opposed to institutional-type funds.”

However, it should be noted that emerging managers, which Drake Advisors favours, will be subjected to more scrutiny than those located in well-established jurisdictions like London, New York and Hong Kong. Every emerging manager will need to be individually approved, even if they are regulated to a fairly high standard; their academic and professional backgrounds will be more closely scrutinised.

Such regulatory developments could well play into the hands of specialised players like Drake Advisors going forward. But Todd is also mindful of the growing onshore market: “We’ve recently opened a company management office in Cayman so we’ll have the ability to set up funds in either Cayman, the BVI, or South Africa. Our next strategic move will be to establish an onshore presence in Malta, Ireland or Luxembourg and the ability to offer UCITS-type funds.”

For the BVI, from a strategic viewpoint, Todd says the firm will continue to focus on helping managers establish segregated portfolio companies but is keen to stress that support extends beyond mere fund administration:

“We also help clients put the whole package together including the legal work, providing access to well qualified directors, prime brokers, as well as provide assistance in running the fund itself.” 

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