Jul 2007 Bermuda Hedge Fund Services 2007

New legislation Focus on regulation Innovative listing gives fresh impetus draws institutional solution for to fund sector investors funds on BSX CONTENTS In this issue…

03 Bermuda financial sector strives to balance regulation and flexibility By Suchita Nayar

05 Bermuda’s growth attracts global talent By Jessel Mendes, Chad Critchley and Chris Gauk, Ernst & Young

09 Butterfield draws on 150-year history By Douglas Lang, Butterfield Fund Services (Bermuda)

11 Pocket-sized financial powerhouse puts its faith in good housekeeping By Suchita Nayar

13 An innovative listing solution for funds By Greg Wojciechowski, Bermuda Stock Exchange

Publisher

Special Report Editor: Simon Gray, [email protected] Sales Manager: Simon Broch, [email protected] Publisher/Editor-in-Chief: Sunil Gopalan, [email protected] Marketing Director: Oliver Bradley, [email protected] Graphic Design (Special Reports): Siobhan Brownlow at RSB Design Photographs: Courtesy of Bermuda Tourism Published by: Hedgemedia Limited, 18 Hanover Square, London W1S 1HX Tel: +44 (0)20 3159 4000 Website: www.hedgeweek.com

©Copyright 2007 Hedgemedia Limited. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

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Bermuda financial sector strives to balance regulation and flexibility By Suchita Nayar

In a speech delivered at an Association of because this jurisdiction had no regulation, a Bermuda Compliance Officers’ event last claim that Packwood vigorously disputed. month, Bermuda International Business The other location, she said, had rules that Association chief executive Cheryl Packwood were in fact more onerous and cumbersome narrated an incident which, she and other than Bermuda’s. He replied: “Sorry, I know all industry members believe, shed light on the about the differences in regulations, but I ongoing debate on standards of regulation should have said, ‘There is no enforcement and supervision in the offshore financial of regulation where I am domiciled.’” services industry. For a glimpse of what some offshore At a recent hedge fund conference in a jurisdictions have come to represent, location she describes as “one that identifies Bermudian officials say one does not have to Bermuda as one of its major competitors,” look too hard – which is why they do not Packwood was seated with one of the want the territory to be identified as one. presenters, who worked as the compliance Says Packwood: “We regard ourselves as an officer and corporate counsel of an alternative financial jurisdiction, which unidentified firm. She pressed him on why happens to be located on an island.” he chose another jurisdiction over Bermuda Bermuda is a tiny speck in the north to register his firm’s funds. Atlantic Ocean, more than 1,000 kilometres The compliance officer said that was (about 670 miles) east of the nearest ➧ p6

BERMUDA Hedgeweek Special Report Jul 2007 www.hedgeweek.com | 3 If it were this easy you wouldn’t need help getting through it.

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© 2007 ERNST &YOUNG ERNST & YOUNG REFERS TO THE GLOBAL ORGANIZATION OF MEMBER FIRMS OF ERNST & YOUNG GLOBAL LIMITED, EACH OF WHICH IS A SEPARATE LEGAL ENTITY. ERNST & YOUNG Bermuda’s growth attracts global talent By Jessel Mendes, Chad Critchley and Chris Gauk

Clients of Ernst & Young get a lot more than offers employees the opportunity to move to meets the eye. The eight partner ranking other offices around the world, and the firm leaders and 170 professionals and staff that encourages its specialists to work in other comprise the Hamilton office of Ernst & jurisdictions and industries. Young are in no way an island to The Bermuda office offers auditing, themselves, but a vital part of the firm’s actuarial, risk and regulatory, and operations worldwide network of specialists. improvement services under the group’s The firm prides itself on putting its Assurance & Advisory practice. The office collective worldwide experience to work in also offers US tax services to individuals, helping its clients achieve their business partnerships and corporations and, with Ernst goals and meet existing competition and & Young international tax services units, future challenges. Ernst & Young’s integrity offers tax advice to offshore businesses that and professional competence are the have operations in multiple countries. cornerstones of the global organisation. The The financial services group works firm is committed to ensuring that its service actively with asset managers, banks, lives up to the firm’s reputation as an ethical, brokerages, insurers and private investors to independent and objective firm built up provide audit and tax services. As befits a worldwide over the past century and more. leading insurance jurisdiction with more than An important aspect of this mission is 2,000 companies and USD230bn in assets, investing in its people through training Ernst & Young has a particularly strong local programmes and other efforts. Driven by team in this sector, with insurance and growth, it’s no secret that Bermuda suffers reinsurance specialists serving more than from a shortage of local skills that are 300 insurance clients. heavily in demand in offshore financial The Bermuda asset management group services jurisdictions. The attraction of work comprises more than 60 professionals permit holders and the flexibility the servicing clients offering both mutual and government has shown in adjusting the hedge funds through vehicles such as duration of work permits in certain cases corporations, unit trusts and partnerships. has helped meet the demand. The firm is The practice services hundreds of onshore also addressing the issue by, among other and offshore funds, helps clients to set up things, hosting an annual recruitment event funds in Bermuda and assists managers at which candidates are introduced to Ernst seeking to expand into other jurisdictions. Jessel Mendes, Chad Critchley & Young’s well-established professional Bermuda’s buoyant financial sector and Chris Gauk are leaders in designation programme and its commitment the Bermuda Ernst & Young continues to attract international investors – to training the people it recruits. hedge fund practice for example UK-based private equity firm 3i, In addition to recruiting locally, the which has just acquired a stake in fund Bermuda practice spreads its net to North administrator Fulcrum – and the island’s America, Europe, and Asia. With the hedge future as an offshore centre remains bright. fund services industry expected to grow at A key factor is the authorities insistence on up to 30 percent annually and the insurance attracting top-quality managers, not just a sector continuing to expand, Bermuda is a large number of funds, to safeguard the very appealing professional destination. In island’s reputation as a pre-eminent financial addition, Ernst & Young’s global network services hub. ■

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p3 ➧ continental landmass, Cape Hatteras in North Carolina, and home to an estimated 66,100 people. Once best known as a rather genteel tourist destination for moneyed visitors from Europe and North America, the archipelago of 138 small islands has seen its economy transformed by international financial services over the past two or three decades. Bermuda is now the world’s insurance and reinsurance capital with a total of 1,312 companies at the end of 2005, with gross premiums of USD100.7bn and total assets of USD329.8bn, as well as being a thriving hub for funds with more than 2,200 traditional and alternative vehicles domiciled in the jurisdiction and total net assets of some USD1210bn. Additionally, the Bermuda Stock Exchange has more than 420 listed securities with a total market capitalisation of application turned around in as little as 24 USD350bn, and there are four home-grown hours at a cost in fees of around USD3,900, banks, of which the best known is Bank of comparable with if not less than what it Bermuda, now part of HSBC, and Butterfield would take in any competing jurisdiction. But Bank. Tim Calveley, chief financial officer of hedge While these numbers are impressive for a fund administrator Fulcrum, hastens to add: group of islands barely a third of the size of “Bermuda is trying to tell everyone it’s not a Washington DC, they are modest in brass-plate jurisdiction. The BMA is quite comparison with those of rival domiciles stringent about anti-money-laundering. It has such as the Cayman Islands, Dublin and positioned itself as a premier jurisdiction with Luxembourg. That, say industry insiders, is high standards, and that’s how it wants to deliberate; Bermuda views itself as a known.” somewhat exclusive club. The financial Adds Pat Phillip-Bassett, the BMA’s regulator, the Bermuda Monetary Authority, is assistant director for corporate governance extremely vigilant about whom it lets in and and communications: “Maintaining that how business gets done from the island’s delicate balance supports Bermuda’s pristine shores. Quality, not quantity, is its success as a leading, quality financial guiding philosophy. services jurisdiction. A vast network of At the same time officials such as deputy attorneys, auditors and administrators has premier and finance minister Paula Cox helped solidify its place in the international increasingly have to defend Bermuda’s financial services industry.” reputation from charges of being costly and Among measures to strengthen oversight slow, and industry participants are embarking of the insurance sector, the regulator has on an aggressive marketing approach to developed an audit programme for debunk such myths and instill a different newcomers to complement its on-site image of a jurisdiction that is serious about reviews. It is also preparing a code of regulation but welcomes innovation. conduct for companies and has expanded They hope institutional investors, such as the scope of audits it conducts on location. endowments and pension funds, will be The BMA has carried out initial reassured by Bermuda’s commitment to implementation of a programme governing its policing its financial services companies, and insurance captive market over the past three are taking the message to leading onshore months, and it is close to completing work financial centres including New York, on a new risk-based capital adequacy model. London, Paris and Geneva. Meanwhile, insurers and re-insurers A company can have its registration continue to flock to Bermuda. During 2006,

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The island is also tweaking a number of other measures including its regulations designed to prevent money laundering, and the BMA will have statutory authority to monitor fund administrators’ anti-money laundering compliance. It also has authority to check legal and accounting professionals conducting financial transactions for clients and can order searches of business premises if required. The measures to assure a regulated environment for fund services are encouraging 82 new firms were established here, the continuing growth in the sector. Citadel largest number for three years and up nearly Solutions, the fund administration offshoot of 10 per cent from 2005. The new wave of one of the largest US hedge fund managers, business coming to Bermuda began is joining a sector that already includes HSBC following the September 11, 2001 terrorist (through its acquisition of Bank of Bermuda), attacks in the US and gained further Bank of New York and Citigroup (which has momentum after Hurricane Katrina in 2005 – just acquired Bisys, another administrator with events that cost the industry an estimated a Bermuda presence). USD40bn but prompted the creation of new The presence of these major players gives insurance companies to take advantage of Bermuda a significant boost in terms of the soaring premium rates. island’s hedge fund servicing capability. Says The Investment Funds Act 2006, which Jessel Mendes, who heads Ernst & Young replaces the 1998 Collective Investment Bermuda’s asset management practice: “In Scheme regulation, has created a three-tier my opinion, Bermuda has done a good job classification. Administered funds must have regulating the local asset management a Bermuda administrator and be either listed industry. Our reputation for quality, flexibility on a recognised stock exchange or carry a and appropriate oversight has helped attract minimum investment requirement of blue-chip names.” USD50,000. Institutional funds are targeted at While Bermuda’s regulatory box is neatly qualified investors and must maintain a checked off, it is contending with a host of USD100,000 investment threshold. other challenges. While it boasts an Funds that do not fall in either of these impressive telecommunications network, classes belong to the standard funds other parts of its infrastructure leave category. Given the sophisticated nature of something to be desired. Skilled manpower its market, the regulator does not encourage is always at a premium, and the decline of retail participation in Bermudian alternative the dollar against the euro and sterling is funds, although the sector also includes making it harder to attract offshore talent to retail funds offered to local investors by the its shores. island’s domestic financial services providers. Several administrators including Citi, Responsibility for creating or changing Dundee Leeds and HSBC are reportedly rules now rests with the BMA rather than the scaling back their Bermudian operations for finance ministry. The new legislation reasons that are not completely clear but introduces the licensing of new fund may reflect higher costs and skills shortages. administrators, of which Citadel Solutions Rents and purchase prices for higher-end Bermuda became the first last month, and residential properties are already among the the regulator is drawing up guidelines highest in the world, which filters down to governing their duties, requirements and the salaries that firms must pay. standards. However, the BMA says that that The government is working with firms in its approach to regulation of the fund sector the accounting, fund administration and will remain unchanged as long as the insurance sectors, which are most likely to industry follows market discipline and carries be affected by the manpower crunch. It has out proper disclosure. been flexible in granting extensions of visas ➧ p10

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BUTTERFIELD FUND SERVICES Butterfield draws on 150-year history By Douglas Lang

The firm now known as Butterfield Bank is targeted over the next 18 months through Bermuda’s oldest banking company. It traces geographic growth and increased marketing its origins back to a firm founded by Nathaniel efforts. Being part of a bank, the fund Butterfield in 1758. Originally established to services business can offer a one-stop shop trade cedar, wine and other dry goods, the to clients including compliance, currency company gradually started providing financial hedging, line of credit, leverage, cash services to its suppliers and customers. A management and custody services. century later, financial transactions dominated Butterfield Fund Services is anticipating the business of the company, and in 1858, additional inflows of new business as under the direction of the founder’s grandson, institutional investors increasingly demand Nathaniel T. Butterfield, the firm became the enhanced corporate governance and third- Douglas Lang is managing Bank of N.T. Butterfield and Company. In 1865, party administration. Unlike some of its director of Butterfield Fund “& Son” was added to the bank’s name, and Services (Bermuda) competitors, the group is still very much in 1904 it was incorporated as the Bank of N.T. interested in the USD50m to USD200m funds Butterfield & Son Limited under a Special Act as well as multi-billion-dollar vehicles. While of Parliament. other administrators take on only the biggest Today, Butterfield Bank is well known for a funds, Butterfield Fund Services believes it wide array of businesses including retail and can offer excellent customer service to corporate banking, fiduciary services, fund smaller funds and still maintain a strong administration, private banking and asset business plan. management. The group’s 1,500 employees Butterfield Fund Services has a number of stretch from Bermuda to offices in the strengths that make it an attractive choice. Bahamas, the Cayman Islands, Barbados, First, it has a highly educated and Guernsey, Switzerland, Canada and the UK experienced staff, maintains a low staff as the bank prepares to celebrate its 150th turnover rate and motivates its top talent to anniversary next year. succeed within the organisation. Secondly, The Butterfield Fund Services business, comprehensive internal control policies and which was launched in 1969 and is now led procedures ensure that proper checks and by senior vice-president Frank Sebestyen, has balances protect the company and its clients. shown remarkable growth over the past few Thirdly, sophisticated IT systems in both years. In addition, recent regulatory changes accounting (Advent Geneva) and shareholder introduced by the Bermuda Monetary Authority services (NTAS) are vital to compete in through the Investment Funds Act have made today’s expanding hedge fund industry. business conditions more amenable. The The company is also continuing its Bermuda operation administers 400 funds with overseas expansion. It is looking at opening USD35.5 billion of assets, numbers that a marketing office in New York to direct indicate the island’s strength as an offshore more business to all its servicing locations, hedge fund jurisdiction. and in March this year opened its first The rapid growth in hedge funds and onshore North American service centre in other alternative investments is a unique Halifax, Nova Scotia. Butterfield Fund opportunity for Butterfield Fund Services to Services (Canada) has already taken on a expand its fund administration business dozen employees whose mandate is to help significantly over the next few years, with a alleviate the workload of their colleagues in further 30 per cent increase in business Bermuda and Cayman. ■

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p7 ➧ to certain foreign employees that have been Critchley. “They are both looking at similar admitted on work permits, and has investment opportunities.” introduced various practical measures to Meanwhile, the Bermuda Stock Exchange ease living and working conditions, including is targeting potential listings of debt car-sharing schemes and a faster ferry derivatives and warrants as well as of hedge service for commuters. funds. It has teamed up with the BMA and To get around infrastructure issues, some BIBA to create ‘Launch ‘n’ List,’ an initiative administrators have been establishing offices that allows fund paperwork to be submitted in other countries including Canada and simultaneously to the regulator and the India. Both Butterfield Fund Services and exchange. In most instances, a listing on the Olympia Capital have opened facilities in exchange can take place within a two-week Halifax, Nova Scotia, over the past year, turnaround. while Fulcrum has an office in Waterloo, Bermuda’s well-established fund Ontario. Butterfield, which already has administration sector is one of the operations in Barbados, the Cayman Islands, beneficiaries of the growing trend for US Guernsey, Switzerland and the UK, is looking hedge fund managers to engage third-party to add New York to its international network. administrators, gradually falling into line with Critics say that businesses moving their counterparts in Europe and other operations overseas spell long-term trouble regions where this is the norm. for Bermuda and say the government should According to Douglas Lang, managing offer incentives to staunch the outflow, director of Butterfield Fund Services, as although the more relaxed approach to hedge funds accept increasing volumes of recruitment abroad helps. Ernst & Young, for institutional money, they are being compelled instance, now brings in people from countries to hire independent administrators to service such as India and the Philippines. “We have their assets and calculate valuations, which gone much further afield to find qualified should help steer business to Bermudian accountants,” says executive Chris Gauk. administrators, especially those that already The recruits are also on the regulatory service offshore fund structures for US side, with the BMA having just lured managers. Matthew Elderfield from the UK’s Financial Other sectors of the financial industry also Services Authority, where he had been head seem to be benefiting from Bermuda’s of department for the major retail groups reputation for sound regulation and solid division since December 2004, to succeed service providers, including private wealth Cheryl-Ann Lister as its chief executive. management and fiduciary services. Officials Elderfield was previously director of policy and industry players hope that the for the International Swaps and Derivatives jurisdiction can take advantage of a global Association and established its European shift toward greater scrutiny of the offshore operations. world and demand on the part of investors It’s a time of change, too, in the structure for protection through the use of of the island’s financial services industry, independent service providers and effective with increasing signs of convergence corporate governance structures, and that between its two largest sectors, insurance this will feed through to the bottom line for and hedge funds, according to Julie McLean, the island’s businesses. a partner in the corporate department at law For now, Bermuda is on the upswing as it firm Conyers, Dill & Pearman. deploys its reputation as a well-policed Hedge funds have become significant financial centre to its advantage, McLean investors in the area of property catastrophe argues, saying the island can point to a insurance through vehicles known as much longer history of effective regulation sidecars, fixed-term bespoke reinsurance and compliance requirements than some of deals between reinsurance companies and its international rivals. Members of the investors such as hedge funds and private industry are confident that the authorities will equity partnerships. “Lines between private combine this with adjustments to the regime equity and hedge funds are slowly blurring where necessary to make procedures as as well,” says Ernst & Young executive Chad efficient and streamlined as possible. ■

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Pocket-sized financial powerhouse puts its faith in good housekeeping By Suchita Nayar

At a time when offshore financial centres are private equity firms and hedge fund again under fire from politicians in managers, a fresh initiative is underway in Washington concerned about the use of tax- the US Congress to clamp down on the use free jurisdictions by US individuals and of offshore centres, backed by influential companies, as well as the difficulty of senators including Democratic Party monitoring alternative funds located in presidential hopeful Barack Obama. territories where the writ of federal regulators Last month Senate Finance Committee does not run, Bermuda is keen to get the chairman Max Baucus and senior message across that it is anything but a Republican member Chuck Grassley made brass nameplate jurisdiction for offshore headlines by asking the US Government business companies and hedge funds. Accountability Office to examine Ugland While most attention in recent weeks has House in George Town, Grand Cayman, the been on the debate over the taxation of the home of leading offshore law firm Maples & share of fund profits received by partners in Calder, for possible avoidance of US taxes ➧ p14

BERMUDA Hedgeweek Special Report Jul 2007 www.hedgeweek.com | 11 Uniquely positioned

Established in 1971 the Bermuda Stock Exchange (BSX) is today the world’s fastest growing offshore securities market. The BSX is internationally recognised as an attractive venue for the listing of:
Hedge Funds
Investment Fund Structures
Equities
Fixed Income Structures
Derivative Warrants

Bermuda Awww.bsx.comd ve-mail: [email protected] 22 Church Street, Hamilton HM 11, Bermuda Tel: 1-441-292-7212 • Fax: 1-441-296-1875

The BSX is a full member of the World Federation of Exchanges. Bermuda is a British Overseas Dependent Territory and is part of the UK for the purpose of OECD membership. BERMUDA STOCK EXCHANGE An innovative listing solution for funds By Greg Wojciechowski

With nearly 2,000 registered funds and a a current market capitalisation (excluding combined net asset value of around mutual funds) of more than USD330bn. USD179bn, Bermuda is home to a thriving ‘Launch ’n’ List’ offers a solution to managers and dynamic offshore funds industry. For that are facing long delays to bring their many years, the island has been the leader funds to market on other exchanges because in creating and implementing the business of increasing regulatory requirements. and regulatory models that have become the Bermuda’s strength as an offshore financial standard for other jurisdictions to follow. services leader owes much to its longevity in Bermuda is located within two hours’ the business. As a pioneer of the offshore flying time of most US east coast hubs and fund business, the island has established a a short journey from Canada. Daily air commercially sensible level of regulation and Greg Wojciechowski is services to the UK and European centres put president and chief executive created products that meet the needs of a the island at a crossroad between Europe of the Bermuda Stock sophisticated client base. The jurisdiction’s and North America and in a complimentary Exchange experience has produced a deep and time zone to Asia. This proximity to the knowledgeable infrastructure of service world’s largest capital markets has been providers such as fund administrators, critical to the continued success of the lawyers, banks, auditors and the BSX. sophisticated industries that Bermuda has Launched in 1971, the BSX specialises in developed, nurtured and grown. listing and trading of capital market The arrival of leading financial services instruments such as equities, debt issues, groups such as Citi, its recent acquisition funds and depository receipt programmes. Bisys and Bank of New York, and the The exchange has carved a niche in the acquisition of Bank of Bermuda by HSBC, global funds industry; of more than 420 have thrust the jurisdiction into the spotlight listings, nearly 350 are funds and more than for financial services. These leading global 100 are hedge funds or have similar attributes. players have given the island’s hedge fund The exchange’s regulatory approach is servicing capabilities in particular a based upon accepted international standards significant boost. and seeks a balance between facilitating Bermuda’s pragmatic approach in creating issuers’ access to the market and the an operational, technical and regulatory safeguarding of investors and provision of infrastructure focused on clients’ needs, information that enables informed decisions while maintaining integrity throughout the on the value, risk and merit of listed securities. system, stems from concerted collaboration The BSX has become the offshore between the private and public sectors. This location of choice for entities seeking a model ensures that policies remain in line superior level of support and distinction from with or ahead of market developments. their listing, with more than half the funds A recent example is ‘Launch ’n’ List’, a listed on the exchange originating from other collaborative initiative involving the Bermuda jurisdictions. Issuers also benefit from the International Business Association and the award of Approved Stock Exchange status regulator, the Bermuda Monetary Authority, to under Australia’s Foreign Investment Fund speed the listing of funds on the Bermuda taxation rules and of Designated Investment Stock Exchange (BSX), the world’s leading Exchange status by the UK’s Financial fully electronic offshore securities market with Services Authority. ■

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p11 ➧ by the thousands of companies that use the building as a legal address. Bermudian officials are quick to insist that the island is a financial jurisdiction of substance. “We’re not just a post box address,” says Cheryl Packwood, chief executive of the Bermuda International Business Association. “We have the intelligence, intellectual property and infrastructure to make business decisions here. Actual business gets done here.” Acting as an official mouthpiece for the international financial industry, the group’s members plan to carry this message to industry events around the world. In September, BIBA plans to host a hedge fund panel in Greenwich, Connecticut, where its mission will be to debunk the myth that Bermuda is over-regulated and expensive among offshore jurisdictions. Similar events in Paris and Geneva are also planned. Says Packwood: “We don’t have regulations in place just for the sake of having them. They come with a good housekeeping seal.” The island’s financial regulator, the Bermuda Monetary Authority, also prides itself on its long-standing “quality effective regulation and the freedom to let over quantity” mantra. It thoroughly business innovation flourish. scrutinises fund prospectuses and While many other offshore jurisdictions subsequent financial reporting to ensure embraced ‘know your customer’ rules and adequate disclosure to investors. other measures to counter money-laundering Following an extensive review of its nearly only in the past decade, following the decade-old regulatory framework for funds establishment of the Financial Action Task that took up most of last year, the authorities Force to make it harder for members of the have updated the legislation with the drugs industry and other criminals to recycle Investment Funds Act 2006, which received their revenues into legitimate deposits and the assent of the territory’s governor-general investments, Bermuda has insisted on at the end of December. knowing the identity of those who do The legislation introduced for the first time business there for more than half a century, licensing rules for fund administrators, a according to Julie McLean, a partner in the move the regulator hopes will strengthen its corporate department of law firm Conyers, reputation as a jurisdiction that adheres to Dill & Pearman. international standards, according to Pat Over the past six years, since the Phillip-Bassett, the BMA’s assistant director September 11, 2001 attacks on New York put for corporate governance and the financing of terrorism into the spotlight, communications. The recent legislation gives the government has further fine-tuned the the BMA greater investigative powers to root code, which was originally put in place out problematic funds. before World War II to keep out Nazi money. However, the regulator and industry The BMA has been asking the hedge fund representatives are also trying to quell industry tough questions before it became concerns about the jurisdiction becoming fashionable to do so, says McLean, although over-policed, maintaining that the island is this is not at the cost of speed to market. thriving as a result of its balance between She notes that a fund can be registered in

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for their children in the island’s limited number of schools. Families have to make do with one car per household, but even so, roads are limited and commuter numbers and congestion are rising. Businesses have to deal with problems from an infrastructure point of view, says Tim Calveley, chief financial officer of hedge fund administrator Fulcrum, which moved some of its activities to Waterloo, in the Canadian province of Ontario, to capitalise on the greater availability and ease of recruitment of staff. Fulcrum, which was established in Bermuda 12 years ago and in which UK private equity firm 3i recently took a minority stake, still maintains a small number of management staff on the island. However, Calveley expects Bermuda to maintain its role as a financial services hub, thanks to a robust regulatory framework, stable between two and 10 days and involves just government, geographic proximity to both USD3,000 in fees. New York and London, a low tax Bermuda seems an unlikely location for environment and access to a wide network one of the world’s top hedge fund of local service providers. jurisdictions. Until a couple of decades ago, The massive dominance of the Cayman the oldest British colony in the North Atlantic Islands as a hedge fund domicile does not Ocean was principally sought after by discourage members of the fund wealthy European and North American administration industry, who believe individuals as a travel destination, but today Bermuda can continue to win a significant financial services are its leading industry, share of the business. “Cayman is like a thanks in large part to the booming massive snowball rolling down a hill,” says reinsurance industry, and its gross domestic managing director Douglas Lang of product per capita, estimated at USD75,441 Butterfield Fund Services. “We are hoping to in 2005, is among the highest of any country get pieces off that.” or territory in the world. The firm, which is wholly owned by There’s no question, however, that the Bermuda’s oldest financial services company, territory has its own unique problems. The Butterfield Bank, is also expanding in average cost of a house is nearly USD1m, Canada, having opened a fund making it one of the world’s most expensive administration facility in Halifax, Nova Scotia places to live, and rents on executive earlier this year to help relieve some of the properties are rising. That’s partly due to the workload of its Bermuda and Cayman territory’s high population density, with an operations. estimated 66,100 people living in an area of Butterfield Fund Services also plans to 53.3 square kilometres (21 square miles). open a marketing office in New York to To bring in employees from overseas, attract both onshore and offshore business companies must secure work permits for from the US to add to its existing USD71.3bn them, a process that can involve a lengthy in assets under administration. According to wait for the authorities to complete the a recent survey by HedgeFund.Net, the firm paperwork and carry out background checks. was ranked 17th worldwide among That can create difficulties in maintaining administrators of single-manager hedge staff continuity. Then there’s the issue of funds with USD31.4bn in assets and 11th education; executives coming from abroad among fund of hedge funds administrators can face great difficulties in finding places with USD31.2bn at the end of March. ■

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