Courtesy of Steven Hunt and Wesley Edwards of KPMG

In 2005, KPMG International undertook a research project with the think-tank CREATE on how the global asset management industry will be impacted by the emergence of hedge funds, culminating in the publication of the report Hedge funds: A catalyst reshaping global investment.

Using this report as a basis for discussion, KPMG recently held a Hedge Fund Forum in the BVI, bringing together a panel of offshore and onshore lawyers, administrators, investment managers and regulators to provide the attendees an opportunity to discuss their views on the key topics, as well as the implications and opportunities for the BVI.

Hedge fund growth

Since the onset of the bear market in the early 21st century, hedge fund growth has been nothing short of spectacular, with more than 8,000 hedge funds now controlling assets in excess of US $1 trillion globally. Despite this staggering statistic, this only equals approximately two percent of global investment assets, meaning that the hedge fund industry has a way to go before competing with mainstream funds in terms of assets under management.

The current interest in hedge funds has its roots in the broad range of investment strategies that such funds are able to follow in order to generate returns for their investors.

As an illustration, the performance of a traditional long-only fund, one holding shares in anticipation of their value rising, will suffer once the underlying share prices fall. Given the same scenario, a hedge fund might adopt a short-selling strategy to continue generating positive returns despite the downturn in the share prices.

Future potential

Fund managers have not missed this fundamental benefit of hedge funds, and approximately two-thirds of these managers are, or are planning to become, involved in this type of funds.

The industry is also attracting the attention of pension funds and other sources of institutional capital. Whilst such large-scale investors may prefer to stick with what they know — for example, investing predominantly in equities and bonds — they have such a large base of assets under management that even a small increase in their allocation towards hedge funds could have a significant impact upon the industry.

The KPMG/CREATE report found that pension funds everywhere expect a significant growth in total assets going into hedge funds over the next three years:

• One in two pension funds expects an average growth of 1-10 percent
• One in three expects it to be 11-20 percent
• One in ten expects it to be 21-30 percent

The British Virgin Islands

The number of active funds registered in the British Virgin Islands continues to rise, with 366 new funds registered during 2005. The attractions are clear: it has a modern, competitive legislative base, in the form of the British Virgin Islands Business Companies Act (2004) and the Mutual Funds Act (1996); a flexible regulatory regime that allows for funds to be established and registered in short order, and more cost effectively than in competing jurisdictions; and a solid foundation of experienced lawyers, accountants and administrators, which can add great value to a hedge fund's operations. The jurisdiction is therefore extremely well placed to continue to take advantage of the significant growth expected in the industry.

About KPMG

KPMG is the global network of professional services firms of KPMG International. Our member firms provide audit, tax and advisory services in 144 countries through nearly 103,000 industry-focused, talented professionals who deliver value for the benefit of their clients and communities.

KPMG (BVI) Limited opened its office in October 2005 and is a rapidly expanding firm that fully utilises the knowledge and experience of its local staff, as well as the international resources of other KPMG firms, to provide a full range of services to meet a variety of our clients' needs.

The KPMG/CREATE report Hedge funds: A catalyst reshaping global investment is available online at www.kpmg.vg.

KPMG
Tel: 284-494-1134
Steven Hunt stevenhunt@kpmg.vg
Wesley Edwards wesedwards@kpmg.vg
www.kpmg.vg
As the financial services industry continues to grow and evolve, KPMG in the British Virgin Islands continually works to provide insight into the complex issues affecting the market. KMPG provides audit, tax and advisory services offering guidance and support through thought leadership, industry knowledge and technical skills to help you focus on the success of your business.

Show me financial and other business services available in the British Virgin Islands.

Dreaming of buying a home in paradise? Learn all about BVI real estate, here.