IAN MOORE
Ian Moore
is managing director of Moor Management, which
has offices in Jersey and Bermuda. He can be reached
at ianm@mooremanagement.co.uk |
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Sometimes
overshadowed in the past by more high-profile sectors
such as reinsurance, Bermuda's fund industry has come
into its own over the past few years with the rise
of prominence of the hedge fund industry and the growth
in interest in other types of alternative investment
vehicles.
The Island's mid-Atlantict location is attractive
as a jurisdiction in which to set up offshore funds
for both North American and European managers. But
geography does not explain why one of the fastest-growing
niches for Bermuda's fund industry consists of unit
trusts set up for Japanese investors. It is a tribute
to the high level of legal and technical expertise
available in Bermuda, the effectiveness of the supervision
conducted by the financial regulator, the Bermuda Monetary
Authority, and the overall high reputation enjoyed
by the jurisdiction worldwide that it is winning business
from countries around the world. The special characteristics
of the Japanese market for investment trusts, as unit
trusts are known there, have created an opportunity
for Bermuda-based providers of management services
to develop a new business niche establishing funds
that feed into US hedge funds. But the crucial point
is that Bermuda is considered a high-quality jurisdiction
by both the Japanese regulators and by the country's
fund distributors.
Moore Management, which was established in Jersey
in 1996 to provide institutional
and corporate clients with administration and management
of funds and structured products, created a Bermuda
management company in 2002 in order to meet a growing
demand from Japanese securities brokerages. For a Jersey
management company to choose to establish a presence
in Bermuda is logical, given the similarities between
two island jurisdictions that have carved out niches
as fund domiciles focusing on quality rather than quantity.
Over the past three years, Moore Management's Bermuda
business has grown substantially, and total assets
under management now approach $1.5bn. The use of Bermuda
as a domicile for funds geared to Japanese investors
typifies the ability of the Island to offer the flexibility
to accommodate other countries' regulatory and market
requirements without compromising in any way its reputation
for rigour in its financial supervision.
It also illustrates that despite the growth of highvolume
fund jurisdictions, considerable
opportunity remains in niche areas, especially when
allied to an image that enjoys respect
throughout the world. Ultimately the decision to domicile
the funds in Bermuda has been
driven by the fact that Japanese regulators, brokers
and investors feel more comfortable with that choice
than any other.
The same applies to the role of niche service providers,
whose role does not seem to have been usurped by the
merger trend that has led to the creation of vast multinational
financial services conglomerates. Despite their size
and reach, it appears that these global institutions
cannot always match the particular expertise and nimbleness
of independent, specialist firms.
That is also good news for Bermuda, which currently
lacks the scale and resources to accommodate large
global institutions, with the exception of HSBCowned
Bank of Bermuda and to a lesser extent, Butterfield
Bank, and whose financial sector growth has been driven
by highly focused specialists, from law firms to fund
administrators.
The Island's experience over the years has been that
the bigger the institutions that dominate the global
financial industry become, the greater and more attractive
the opportunities that appear for niche players capable
of offering the bespoke tailored services that their
huge rivals are no longer well structured to provide.
In this environment, the global institutions and the
niche providers are not so much competitors as complementary.
In the case of the Japanese fund business, Bermuda's
role stemmed from the desire
of securities firms there to offer structured products
to investors that invested in US hedge funds. Their
aim was to accommodate the concerns of the Japanese
regulators while avoiding some of the constraints that
would have applied had the funds been domiciled there.
The possibility has existed since 1998, when Japan's
Securities Investment Trust Law (now the Law relating
to Investment Trusts and Investment Companies) was
amended to extend the range of jurisdictions whose
investment trusts were eligible for offering to Japanese-resident
investors.
Previously only funds from OECD countries were admissible,
but the change made any jurisdiction eligible as long
as it was “well provided” in terms of jurisdictional
and disclosure requirements, as determined by the member
of the Japan Securities Dealers Association offering
the fund.
To comply with this rule, the Bermuda Monetary Authority
has been willing to impose the regulatory regime for
Recognised Schemes, one of the three classifications
of unit trusts, on a fund that in fact falls under
one of the other classifications. This application
of a stricter regulatory regime enables the Japanese
dealer to certify that the fund complies with the “well
provided” criteria.
Changes in the Japanese rules on one hand and the
Bermuda regulator's willingness to be flexible on the
other, created the opportunity to create a fund structure
modeled on a vehicle created by Conyers Dill & Pearman
that had already won approval in Japan. Bermuda was
not the only jurisdiction that could have provided
such a vehicle, but the strength of its reputation
swung the decision in the Island's favour, and has
been an important factor in the growth of similar business
from Japan since then.
The success of this business area, drawing on the favourable
reputation of Bermuda in Japan as well as the Island's
familiarity to the US financial industry, demonstrates
how the jurisdiction is placed to fit into an increasingly
complex and global investment industry. That the stamp
of quality provided by a Bermuda structure is recognised
on the other side of the world bodes well for the island's
ability to exploit valuable niches in the future.
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