Feb 2011 BVI Hedge Fund Services 2011 SIBA legislation Cost-effectiveness Court decisions boosts BVI profile in gives foothold to back managers in competitive market start-up managers winding-up disputes C o n t e n t S In this issue… 03 BVI fund sector’s virtues come into focus By Simon Gray 05 Winding up funds in the BVI By Ross Munro, Harney, Westwood & Riegels 09 Competing in the global marketplace By Derek Adler, Ifina 11 Opportunity knocks as market comes back to life By Simon Gray 13 Facilitating investment in emerging markets By Peter Todd, Drake Fund Advisors 16 BVI targets new opportunities in 2011 By Sherri Ortiz, British Virgin Islands, International Finance Centre Publisher Special Reports Editor: Simon Gray, [email protected] Sales Managers: Simon Broch, [email protected]; Malcolm Dunn, [email protected] Publisher & Editorial Director: Sunil Gopalan, [email protected] Graphic Design: Siobhan Brownlow, [email protected] Photographs: British Virgin Islands Tourist Board; iStockphoto.com Published by: GFM Ltd, 1st Floor, Liberation Station, St Helier, Jersey JE2 3AS, Channel Islands Tel: +44 (0)1534 719780 Website: www.globalfundmedia.com ©Copyright 2011 GFM Ltd. 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. BVI Hedgeweek Special Report Feb 2011 www.hedgeweek.com | 2 o v e R v i e w BVI fund sector’s virtues come into focus By Simon Gray The fact that the number of funds domiciled increase from the figures 12 and 24 months in the British Virgin Islands has barely earlier. In September 2008, the month when budged over the past two years – a period the bankruptcy of Lehman Brothers tipped during which the hedge fund industry the global financial industry into free fall, a as a whole has seen a sharp decline in total of 2,922 funds were registered in the fund numbers and an even larger one in BVI, including 2,695 private and professional assets under management, followed by a funds (the remaining 227 public funds partial rebound – testifies to the extent to are more tightly regulated and include which the jurisdiction’s virtues of solid but funds aimed at retail distribution, although flexible regulation and cost-efficiency in industry members say this category almost fees and other expenses have come to the certainly includes some vehicles aimed at fore in the wake of the financial crisis and sophisticated investors). At the end of the economic downturn. third quarter of 2009 the number of BVI- While the Cayman Islands, the world’s domiciled funds totalled 2,923, including largest offshore fund domicile, experienced 2,704 private and professional funds. a significant dip in numbers in sync with the Over this period the number of fund industry’s 2008-09 contraction, as the no. 2 functionaries licensed by the regulator has jurisdiction the BVI has largely ridden out the fluctuated, albeit not very significantly. In storm. The British dependent territory had a September 2008 there were 576 managers, total of 2,951 funds at the end of September administrators and entities combining the 2010, the latest period for which statistics two roles, rising to 582 a year later before are available from the industry regulator, the slipping back to 577 last September. Notably, BVI Financial Services Commission, of which over the past two years the number of 2,740 were private and professional funds, licensed administrators has declined from 40 the main categories used by sponsors of to 35, reflecting the difficulties experienced alternative investment vehicles. by service providers worldwide as a result The number of funds represents a slight of the alternative fund industry’s travails 6 BVI Hedgeweek Special Report Feb 2011 www.hedgeweek.com | 3 Timing is a combination of awareness, responsiveness [ and action. ] Consistently ranked as one of the world’s leading offshore British Virgin Islands law firms by independent directories, Harneys has been offering premium legal services to clients around the globe Cayman Islands for 50 years. Cyprus With over 20 lawyers specialising in the investment funds Hong Kong space we advise on all aspects of British Virgin Islands and London Cayman private equity and hedge funds including establishment, restructuring and closure. Ours is the oldest Montevideo and largest funds practice in the BVI, and we deliver service www.harneys.com which is cost-effective, timely and commercial. H a R n e y S Winding up funds in the BVI By Ross Munro Various recent cases have highlighted issues wind down its business does not necessarily relating to the winding up of funds domiciled justify the appointment of a liquidator. in the British Virgin Islands and the right The ruling follows another BVI case or otherwise of investors to demand that involving an investor seeking the winding up control over the process be taken away from of a fund. In September 2010 the Court of the directors and the funds’ managers and Appeal of the Eastern Caribbean Supreme given to court-appointed liquidators. They Court set aside a winding-up order made also reflect apparent differences between in the case of Westford Special Situations the approach taken by courts in the BVI and Fund Ltd. v. Barfield Nominees Limited those in the Cayman Islands. and another, and dismissed liquidators The case of Aris Multi-Strategy Lending Ross Munro is a partner and appointed over Westfield at the application Fund Ltd v Quantek Opportunity Fund, Ltd, head of BVI investment funds of an investor that had not received and regulatory with Harney, decided by the Commercial Court of the Westwood & Riegels redemption proceeds. British Virgin Islands in December 2010, These decisions have been made on the was the most recent in the jurisdiction merits of each case; in other circumstances involving an investor wanting to put a fund the courts might decide to appoint a into liquidation on the ground of loss of liquidator. However, they run counter to a substratum – the fund’s reason for existence. series of cases where the Cayman court The facts of the case concerned the has been willing to put a fund in the process Quantek Opportunity Fund, a BVI-domiciled of wind-down into liquidation against the feeder fund, which announced in October wishes of the manager and to appoint a 2008 that due to the level of requests for formal liquidator in place of the manager to return of capital, it would be suspending handle the disposal of the assets and the redemptions. The manager obtained return of capital to the investors. Comments shareholder approval to undertake an from the judge suggested this would be the orderly liquidation of the assets held by the normal course of action in cases where the master fund. manager has acknowledged that the vehicle However, some two years later, when will not re-open as a functioning fund. around 35 per cent of the master fund’s This is a point of considerable importance assets had been distributed to investors in to both investors and managers, one the feeder fund, Aris, a minority shareholder, that puts clear water between the judicial sought to have liquidators appointed on the approaches in the two jurisdictions. Beyond grounds that since the fund was no longer the impact on existing funds that are winding accepting new investments or making formal down, it has prompted a fresh look at redemptions, it had lost its substratum. the provisions to be incorporated into the However, the court decided that the offering documents of new funds. More fact the Quantek fund had suspended appropriate disclosure of how managers subscriptions and redemptions did not make anticipate that the fund might eventually it impossible to carry out its business, in this wind down its affairs and return capital case to hold investments in the master fund to investors could subsequently prevent for the benefit of its shareholders. It ruled a liquidator being appointed against the that the mere fact a company intends to manager’s wishes. n BVI Hedgeweek Special Report Feb 2011 www.hedgeweek.com | 5 o v e R v i e w 3 and a general trend toward consolidation not end up on some sort of blacklist or in the sector. find itself subject to sanctions. What they Sherri Ortiz, executive director of the appreciate about doing business in the BVI BVI International Financial Centre, the is our reputation for being well regulated and government-sponsored body that leads respected, and that’s something we are very efforts to promote the territory’s financial anxious to protect. The BVI is in the perfect sector, acknowledges that encouraging position to maintain its standing and regard, growth in the fund services infrastructure is a and that means a lot of clients. It’s important priority for the coming year and beyond. “We to give our clients the level of confidence are pleased to see that investment business they need.” in the BVI has been picking up recently,” An important step last year was the she says. “But we are hoping to see more passage of the long-awaited Securities provision to the industry of value-added and Investment Business Act, which came services such as fund administration and into effect on May 17, 2010. The legislation accounting here in the territory.” not only updated the Mutual Funds Act, Like other international financial centres, which had been the legal basis of the the BVI has also undergone a verbal territory’s fund industry since 1996, but buffeting over the past couple of years brought the jurisdiction into line with the over issues such as taxation, regulation recommendations of the International and transparency from the world’s leading Organization of Securities Commissions, economic powers, who appeared keen to pin which the BVI joined in April 2007.