We Need Supervision, Not More...
IFI hosted a debate on fund domiciliation in London at the end of January in order to discuss if, or how, the series of disasters that befell the alternative fund industry in 2008 would impact the world?s fund domiciles. The debate was divided into two panels. One focussed upon the European fund domiciles and the other on those situated elsewhere ? ranging from the Caribbean to the Gulf.
Speaking on the European panel were: Dermot Butler, Chairman, Custom House Group; Karl McEneff, Managing Director, Daiwa Securities Trust, Europe; Gavin Farrell, Partner, Ozannes; Gordon Wilson, Managing Director, Caledonian Fund Ser vices and David Woodhouse, Chief Due Diligence Officer, Fauchier Partners. And speaking on the panel comprising the fund centres of the Gulf, Bermuda and the Caribbean were: John Bohan, Managing Director, Apex Fund Services; Desmond Holmes, Managing Director Business Development and Banking & Asset Management, Qatar Financial Centre; Adrian Odell, Lawyer, Appleby; Barney Reynolds, Partner, Shearman & Sterling and Michael Wilson, Executive Vice President, State Street.
EUROPE
Speaking as an investor in hedge funds David Woodhouse said that what he and others in his position want is a mixture of independence (from service providers) and competence. He believes that there is a tension between independence and competence, particularly in the area of valuation. But the domicile of a hedge fund will not make much difference for hedge fund investors, he suggested. Choice of domicile only becomes important if something b ad happens to the fund. Then the insolvency law of that domicile comes into play. With regard to regulated hedge funds David Woodhouse believes that this development is still some way off, unless there is intervention by the regulators.
Dermot Butler said that he finds it extraordinary that so many hedge fund investors are ?jumping and down? saying that they will not invest in hedge funds any more unless they are independently administered (as a result of Madoff). The Madoff scandal was a failure of due diligence and, given how the operation functioned, had nothing to do with a lack of independent administration. Having said that, Dermot Butler added that he is pleased that investors are taking the administration side of the industry more seriously. He claimed ?no regulation is going to stop a crook?. Given the changing political climate, which on both sides of the Atlantic is becoming more antagonistic to the offshore centres, Dermot Butler suggested that those looking to set up an alternative fund now should consider locating it inside the EU ? particularly in Malta.
Gavin Farrell said that we need more supervision, regulation, as a result of what has happened. And David Woodhouse raised the question of where the regulation should ultimately be: with the manager or with the fund? He said there is a tension between regulating the fund and the manager. But he added that you can?t put too much weight upon the regulation in the US, which tends to be carried out by junior staff working for the SEC, who make infrequent visits to the managers. The people doing the supervision don?t have time or the experience to carry out adequate supervision.
What will be the effect on the world?s fund domiciles of the anticipated increase in regulation on the alternative fund industry? And will there be changes in patterns of fund domiciliation? Dermot Butler reiterated his view that the EU domiciles stand to benefit, particularly Malta. Karl McEneff made the point that investors are the ones that ultimately matter and they are going to want regulated products. David Woodhouse doesn?t anticipate that patterns of fund domiciliation will change as a result of what has happened unless there are changes to the tax code. Gavin Farrell believes that there will be changes to fund domiciliation patterns but that they will not be that substantial and may not last for that long. Gordon Wilson things that there will be changes to the way funds are put together and that what has happened has been ?a great learning curve?.
Thu 01.Jan