NEWS AND INFORMATION - Details
| Articles | Industry Interviews | Conferences | Employment Classifieds |
 
 
THE CHANGING LANDSCAPE IN OFFSHORE HEDGE FUNDS ADMINISTRATION
 

By Antoine Bernheim, Publisher

The past year has seen many changes affecting the administrators of offshore hedge funds as well as the jurisdictions in which the funds are domiciled

Principal third party administrators of offshore hedge funds

Market share by number of funds

Market share by net assets

Citco

29.1%

41.7%

MeesPierson

19.4%

13.8%

Bank of Bermuda

9.6%

10.9%

Hemisphere

8.3%

5.1%

Olympia

7.6%

2.2%

Goldman Sachs

4.0%

4.2%

Trident

3.7%

1.7%

IFA

3.5%

2.3%

Furman Selz/ING

3.1%

1.0%

Leeds Management

1.4%

1.7%

Daiwa Europe

1.2%

1.1%

Others

9.1%

14.2%

Source: Hedge Fund News proprietary research on over 1,700 offshore hedge funds with total reported capital of $146 billion as of June 30, 1998.

The past year has seen many changes affecting the administrators of offshore hedge funds as well as the jurisdictions in which the funds are domiciled. These changes have occurred in an ebullient environment for offshore hedge funds characterized by an explosion of the number of funds as a result of new managers starting up and existing managers launching new products. These two factors account for a close to 30% increase in the number of single manager hedge funds. Aggregate capital in offshore hedge funds has grown by more than 40%, with approximately 60% of the growth coming from profits and 40% from net capital inflows. Total capital in offshore hedge funds now exceeds $150 billion.

Jurisdictions

Historically, the BVI have maintained a leading share (by number of funds) in the offshore hedge fund market (41%) ahead of the Cayman Islands (32%), Bermuda (13%) and The Bahamas (8%). However, the uncertainties related to the BVI Mutual Fund Act of 1996 (See HFN August 1996 and May 1998 issues) have caused the BVI's market share for newly incorporated funds to decline significantly in 1997. Cayman's regulatory approach of putting the licensing burden on the fund's administrator rather than the fund itself has caused the island to become today's jurisdiction of choice. In 1997, the Caymans reached a 42% market share among newly-created offshore hedge funds against BVI's 29%. Bermuda maintains its position and The Bahamas have gained some of the BVI market share loss that was not picked up by the Caymans, with an 11% share of newly formed offshore hedge funds.

On the US side

It has been a year since the repeal of the ten commandments which became effective January 1st, 1998. In the August 1997 issue of Hedge Fund News, we concluded that no quick change would be made to the relationship between existing funds and offshore administrators because of confidentiality concerns on the part of foreign investors and the difficulty of getting a vote to effect a radical change in the oversight function. While the repeal of the 10 commandments made it possible to bring administrative functions onshore, state laws were not amended simultaneously with the Taxpayer Relief Act of 1997 so that bringing administrative activities onshore could subject an offshore fund to state and/or local taxation. In June, the Governor of Connecticut signed into law a provision that exempts from Connecticut taxation any foreign corporation solely trading stocks, securities or commodities for its own account. Connecticut is the first state to pass such legislation, effective June 24, 1998. A similar bill has been passed by the New York State legislature, effective January 1, 1998 (which also exempts such foreign corporations from New York City taxation) and is awaiting the Governor's signature. In anticipation of these changes and given the growth of their administration business, offshore administrators have been beefing up their US presence and all the major offshore administrators now have at least one US office. The lines between offshore and offshore are being blurred and the leading offshore administrators are well equipped to preserve and even improve their position as an onshore administration business emerges. Recent problems with portfolio pricing of fixed income and mortgage-backed securities where the administrator is not at arms' length with the fund are likely to make investors more insistent rather than less on having a reputable independent administrator overlooking portfolio pricing and accounting procedures. u

 
Back to Top