The final months of 2007 were quiet for the Isle of Man’s hedge fund industry, but times have changed. Mark Dunne reports
The final quarter of 2007 was a difficult time for Mike Simpson. The Isle of Man-based partner at accountancy firm PwC saw his pipeline of hedge fund work fall away at the end of last year, but today he is too busy to worry.
Simpson admits that the Isle of Man did not avoid the economic problems sweeping the world. “It clearly had an effect on our work,” he said. “During the back half of 2007 we weren’t seeing much coming through at all with regards to new funds.”
But in the past few months that has changed as he is busy auditing new funds that are registering on the island, as well as providing tax, regulatory and structuring advice to existing entities.
According to the Isle of Man’s Financial Supervision Commission, by the end of March this year there were 464 funds administered on the island. They had $53.8 million (£27.6 million) of combined capital under management/administration, an increase of almost $10 billion (£5.1 billion) on the same period in 2007.
Simpson claims that the firm’s 80-strong team are auditing at least a quarter of those funds, despite competition from the other big three accountancy firms on the island.
His team works with a range of funds, including those at the top end. “In the recent past, we have had some come through that are worth well over £1 billion. But we do have quite a number of clients who are smaller than that. We have a number of funds that are under £100 million.”
Simpson claims the reason hedge funds are coming to the Isle of Man is due to its constantly evolving regime. “There has been quite a lot of modernisation going on over the past few years. Certainly the regulatory regime for funds has been modernised and there is a Companies Act review going on at the moment, which will be implemented shortly.”
He also believes that location is another factor in why the island has been administering hedge funds for the past 20 years.
“Our main competitor is Dublin, but its fees are expensive and there are huge staff constraints there, certainly service standards are an issue,” he added. “These are the sort of problems that cause people to talk to other jurisdictions, such as the Isle of Man.”
The island’s short distance from London has increased Simpson’s non-hedge fund work, such as structuring companies preparing for an AIM listing. “The life insurance industry has also been active as well with our clients writing a lot of business. So we have been helping companies that are growing organically.”
It seems that no one is immune to the effects of the current economic climate with Simpson seeing several companies suffering. “Gearing and mortgage-based securities are hitting investors directly at the moment, so our clients are focusing quite strongly on who they are using as counter-parties and entering into agreements with.”
This has led to some of his clients reviewing their banking and brokerage arrangements. “The key moment was Bear Stearns,” he said. “Our hedge fund clients were sorting their brokerage arrangements and typically had gone for quality, which were the big four. They were either with Goldmans, Morgan Stanley, Merrill Lynch or Bear Stearns. The problems Bear Stearns had have really focused everyone’s attention.
“However, one investor’s problem is another investor’s opportunity and we are now seeing new funds being set up to invest in distressed debt,” he added.