Specific Mandate Alternative Regulatory Tests funds in the Bahamas can offer significant benefits to Brazilian investors at a low cost, posing a challenge for Brazil’s domestic hedge funds industry, a new white paper from William Heuseler of Itaú Private Bank International says.

High demand from Brazilian investors has boosted the offshore funds industry over the past decade, with the most popular jurisdictions being the Cayman Islands, British Virgin Islands and the Bahamas, with around 15,000 funds currently established, according to the white paper.

“Notwithstanding the enormous increase in the assets managed by Brazilian-domiciled hedge funds in the last several years, the Brazilian hedge funds industry faces several obstacles to greater development, especially when compared to some offshore jurisdictions,” Heuseler writes.

The main challenges cited in the paper are: the existence of strict portfolio investment rules applicable to hedge funds in Brazil; and the complexity of the local control systems, especially as compared to those in the Bahamas.

The full white paper can be downloaded here.