Bermuda funds on fast track as cost creep clouds Cayman

| 16/03/2016 | 1 Comment
CNS Business

Hamilton, Bermuda

(CNS Business): Bermuda’s new low-cost, fast track regime for hedge funds is gaining traction, while frustration builds over the growing cost and regulation associated with a Cayman launch. Although the numbers involved are quite modest, industry insiders remain concerned that cost and regulatory creep in Cayman could lead to a tipping point where the conversation starts to become easier for managers to select Bermuda or BVI as a domicile instead.

“We are the jurisdiction of choice and usually people will suck up Cayman’s additional costs because of all our other strengths and at the moment they would still have a lot of explaining to do if they wanted to choose a domicile other than Cayman, but there is going to be a breaking point as people are really cost conscious and we have heard of a couple of things going elsewhere,” said one hedge fund director, who preferred not to be named.

The unregulated Exempted Fund framework in Bermuda was launched with a fanfare in fall 2013, as a low cost/fast track alternative for investment managers, while in Cayman a succession of fee increases and additional layers of regulation have been imposed on the sector. In particular, CIMA’s Statement of Guidance for investment funds was seen as too prescriptive, being introduced without sufficient industry consultation, with meetings being held for the sake of having meetings, the director noted.

The Directors Registration and Licensing Law has added another layer of cost and oversight, he said, while other jurisdictions are taking the approach of reducing fees and introducing more efficient products.

“We are registering modest but steady year-on-year increases in fund launches, with the majority over the past two years being in our newer Class A and Class B Exempted categories, which were designed to enable faster and easier incorporation,” said Sean Moran, Business Development Manager for Asset Management, Bermuda Business Development Agency.

According to figures from the Bermuda Monetary Authority, of the 80 new funds established in 2014, 25 were set up under the new Exempted Regime, with 14 of them Class A funds and 11 Class B. In 2015 there were 83 new launches, of which 32 were done under the new system, with 23 Class A and nine Class B. In the first two months of 2016 there have been 12 new funds in Bermuda, half of which fall into the Exempted categories.

Ingrid Pierce, Global Managing Partner of Walkers, which recently formed an alliance with a Bermuda law firm, said she understands the exempted funds market is getting a bit of traction, saying the regime provided managers and investors with another option.

The actual numbers are, of course, very small in comparison to Cayman, where there are close to 1,000 annual fund launches, although the fear is, as costs continue to rise, it’s Cayman’s market share to lose.

“Cayman is still the destination of choice but people are aware of the other options and they are certainly having discussions about them and being marketed to,” the anonymous director said. “Clearly, certain people are starting to use them and if you get five or ten good groups in there and one person tells their good news to ten people, then you start to build up that level of comfort, so I think we have to be cautious.”

With 630 total funds in the jurisdiction, Bermuda is a long way off the 11,000 registered in Cayman and despite the modest advances in Exempted Funds, there has been little actual impact on Cayman at this stage.

“Last year there was a lot of noise about the new revamped framework for funds in Bermuda, but the reality is that we are not seeing them at all and not one of our hedge fund managers has a Bermuda fund,” said John Lewis, Director at Highwater, the corporate governance firm. “The only discussion we are having with managers is whether they need a Cayman domicile or a European domicile and the vast majority are setting up Cayman funds.”

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Category: Finance, Financial Services

Comments (1)

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  1. Anonymous says:

    John Lewis’ commentary is right, if a touch complacent. We’d do well to remember that our own funds industry grew (in part) out of complacency in Bermuda, so let’s not repeat history and send it back.

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