Bermuda To Launch New Trading System for Hedge Fund Investors

Lisa Ugur, Tax-news.com, London

28 June 2000

Keen to increase its share of the hedge fund market, Bermuda is to launch a new trading system in the autumn called The Plus Market, which aims to increase trading in hedge funds by eliminating the disadvantages of conventional trading. A 50:50 joint venture between the Bermuda Stock Exchange (BSX)and PlusFunds.com, it is being marketed as 'the world's first truly independent electronic secondary market for hedge fund shares.'

PlusFunds.com managing director Art Greco called conventional trading in hedge funds costly, cumbersome and lacking transparency, liquidity and integrity. Of the new trading system he said 'Our market intelligence is telling us that the industry is looking forward to this development. The firm is positioned for growth.' He also added that until the advent of the new system, investors would not have had access to real time net asset valutaion. With the Plus Market, net asset values (NAV) and daily risk analyses will be provided by independent parties. Greco said 'Our product is superior to anything else out there... There really isn’t anyone who is doing what we’re doing with respect to independence — third party verification of NAV’s and independent risk analysis. Third, since we’re creating shares and listing on the Bermuda Stock Exchange, we’re creating a true secondary market listing.'

Prospects for the new system are good. Forty-three hedge funds — all offshore — with a combined asset value of $20 billion have signed up to join PlusFunds.com. Major names are involved in the project - Standard and Poor's will provide daily risk profiles of the listed funds and the NAVS will be delivered in real time by Ernst and Young. Already the service has attracted 2,500 investors and several key financial institutions.

What the new electronic trading system means for investors is that their investments will be more fluid (typical hedge funds have meant investors have had to agree to lock-in their investments to the fund for a period of time). Greater liquidity is obviously an advantage when the market is subject to great volatility. What it means for Bermuda is the opportunity to make deep inroads into gaining a large share of the hedge fund industry.

Mr Greco refers to other hedge fund web sites as simply putting 'the old world' way of business on the Internet, claiming that with the Plus Market 'we have recreated the world.'

The BSX is also excited about the new trading system. A statement said 'It is one of the key components in PlusFunds.com’s strategy to restructure the hedge fund marketplace by providing the structural and legal integrity of a regulated exchange for the listing and trading of securitized hedge funds. For the BSX it is seen as the first step in the fulfillment of a strategic plan to build out and create complementary markets from the existing infrastructure. Given the fact that this is an entirely new concept in hedge fund management it is unlikely the trading will be highly active from the onset. However, it is anticipated that this partnership will create many exciting new opportunities for the Exchange.'

Bermuda's share of the estimated $500 billion hedge fund industry is about $9.5 billion, but the BSX is confident that after the implementation of the new system, this figure will increase significantly. Bermuda already has a good grounding in hedge funds, after all, as HedgeWorld Ltd, owner of HedgeWorld.com, another online service provider for the hedge fund investor, has its home there.

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