Better late than never, the Man authorities reckon. Two and half years after its government passed legislation designed specifically to attract hedge funds, the Isle of Man is finally taking off as a hedge fund location. At the end of March this year 63 hedge funds managing assets of over $1 billion had chosen the Isle of Man as a domicile. But as of today, thirteen more have arrived since the beginning of the month. The fund managers are based in London and Switzerland only, for the island rarely appeals to North Americans, who generally look to the Carribean centres closer to home for their fund solutions.
It was back in November 1999 that the Isle of Man government added the so-called Experienced Investor Fund (EIF) to the range of funds – Authorised Schemes, International Schemes, Exempt International Schemes and Professional Investor Funds – which can be established on the island. Its explicit ambition, with investment limited to “experienced investors” (a.k.a. high net worth individuals) prepared to put in a minimum investment of $15,000, was to tempt hedge funds to set up in Douglas. Provision was also made to allow existing Isle of Man exempt international funds to convert to EIFs, since the Manx authorities were surprised to find that the island was already playing host to some hedge funds.
At the time, hopes of rapid success were high. “The EIF is a fund product for the new millennium,” explained David McGarry, the then Chairman of the Isle of Man Fund Management Association. “Its launch means we, in the Isle of Man, have set the standard for all our offshore European rivals. The way ahead is in niche investment products. The EIF’s simplicity and flexibility make it ideal for ‘alternative investments’ like hedge funds where freedom is needed to concentrate investments. We have consulted widely in the industry and I think we have got virtually every aspect right. All the ingredients are there – from the provision for international prime brokers and custodians to maximum flexibility in forming open-ended investment vehicles.” Chief among the attractions was the exemption of the funds themselves from Isle of Man regulation, with only the local third party administrator and custodian scrutinised by the Financial Supervision Commission (FSC).
Initial projections suggested the Isle of Man would attract $1 billion at least in the first three to six months and it did attract some high profile clients, such as the Singer & Friedlander IT fund. But growth did not materialise as quickly as McGarry and others on the island had anticipated. Steven Beevers of the International Services Division at the Isle of Man Treasury attributes the slow start to the natural unwillingness of hedge funds, prime brokers and their legal advisers to abandon familiar fund structures and relationships. But Beevers reckons they have now got so familiar with the idea that the Isle of Man is now on the cusp of self-sustaining growth in its chosen niche. Expect to see a lot more of the Isle of Man on the hedge fund conference circuit this year.