Attractive Offshore Hedge Fund Locales
While it maybe be known that a hedge fund is an investment fund open to a small group of investors undertaking a wider range of investment and trading activities (complete with paid fee to the investment manager), it’s lesser known how “offshore” hedge funds are investment vehicles organized in offshore financial centers. But then again, “offshore” may mean different things to different people.
In some areas, hedge funds are open only to a limited range of professionals or wealthy investors meeting certain criteria set by regulators, but in exchange, they allow exemption from many regulations that govern ordinary investment funds. The regulations thus exempted typically include restrictions on short selling, the use of derivatives and leverage, fee structures, and on the liquidity of interests in the fund. Light regulation and the presence of performance fees are the distinguishing characteristics of hedge funds.
Though the words offshore hedge funds may be mystical to some, they are simply investment vehicles organized in an area other than your locale, with the British Virgin Island and the Cayman Islands being the most popular locations.. Offshore financial centers (“OFC”) are large centers for the establishment and administration of mutual funds and hedge funds.
Management of hedge funds is often conducted in or near major international financial centers such as London and New York, but the actual fund is registered in an OFC. In many OFCs, the low costs of setting up a company, along with a forgiving tax environment, makes them attractive to establishing companies. It has been estimated that over one-half of the world’s international business corporations are incorporated in the British Virgin Islands.