The top three domiciles for hedge funds in 2000 were the Bahamas, Cayman Islands and British Virgi...
The top three domiciles for hedge funds in 2000 were the Bahamas, Cayman Islands and British Virgin Islands, according to statistics from Standard & Poor's. It was the same in 1999, with Bermuda again coming in in fourth place.
Lawyers usually manage the legal, tax and documentary process of establishing a hedge fund on behalf of the hedge fund manager, according to Stuart Martin, a partner of legal practice Dechert. He said: "The final choice of domicile will depend on an assessment of a number of factors, including required fund structure, the ability of a domicile to deliver that structure efficiently and in a cost-effective manner and last, but not least, the requirements of the intended investor base."
Christopher Hilditch, senior associate with Maples and Calder Europe, agrees. He works for one of the largest law firms in the Cayman Islands , which has affiliated offices in London and Hong Kong. Hilditch said: "The fund manager will need to balance some of the following criteria: structures, flexibility, regulation, speed and service levels, cost and investor perception."
The cost of registering a hedge fund varies between domiciles, although it is considerably cheaper to incorporate in the Caribbean than in Europe.
Greg Swart, chairman of the Cayman Islands Fund Administrators Association, said: "Hedge funds sold to US tax-exempt investors and European investors are typically structured as exempted companies. The costs of doing business in the Caymans are virtually nothing. The initial and annual fees payable to the Cayman government are typically less than $2,000pa. Legal fees and other set up costs vary significantly, depending on the quality and experience of onshore legal council."
The costs of incorporating in the British Virgin Islands include statutory fees of between $300 and $1,000, depending on the capital assets of the company (below or above $50,000) and annual licence fees also range from $300 to $1,000.
The assistant registrar of mutual funds in the British Virgin Islands government, Brodrick Penn, said that a registered agent must be employed to facilitate the process on the behalf of the fund manager.
The application fee for incorporating international business companies in the Bahamas ranges from $350 to $1,000 depending on company's capital. Dirk Simmons, vice-president of Citco Fund Services (Bahamas), said that the total cost of incorporation in the Bahamas might be between $25,000 and $30,000.
He added: "If we were employed as administrator we would anticipate completing incorporation within one or two weeks after we are satisfied with the due diligence performed on the prospective client."
"The legislation of the Bahamas has drastically changed in the last two to three months with respect to hedge funds. The Bahamas is well in line with the industry's best practice."
Government fees for establishing a fund in Bermuda typically range from $1,780 to $3,635 for capital up to $50,000. Holding a licence as a fund management company on the Isle of Man carries an application fee of £750 and an annual fee of £5,000.
The Isles of Man's government launched its "experienced investor fund" category in October 2000, which it believes is particularly suitable for alternative investment products such as hedge funds. It is unregulated and carries no charges or fees. The government requires a copy of the offering documents within 14 days of the company being registered.
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