Bermuda is one of the world's top offshore financial services centres and an ideal place to set up hedge funds, according to a report in London-based publication Hedgeweek.

The report, entitled 'Bermuda continues to build on a strong reputation', quotes a number of the Island's big hitters in the hedge fund industry as backing Bermuda as a jurisdiction of choice for companies looking to incorporate over the likes of the Cayman Islands and other newer competitors.

But it claims the Island still has a lot of work to do to make it the number one option.

Jessel Mendes, a partner at Ernst & Young's Bermuda hedge fund practice, said that the Island has a very developed and reputable financial services market.

"I think we are known globally for being a quality jurisdiction with effective regulation, sound infrastructure, talent and an excellent track record for attracting and retaining business," he said.

Chris Harkness, managing director of Bermuda-based fund administrator Swiss Fund Services, agreed that one of the Island's best selling points was its highly respected regulatory body, with the country developing a tightly-knit culture in which the private and public sectors are able to operate with great efficiency over the past 50 years and offering innovative investment products and flexible client solutions.

However Chris Gauk, a partner at Ernst & Young, reckons that Bermuda has some work ahead of it to become considered as a viable alternative to other global offshore domiciles.

"With recent changes to our funds legislation and many of the local industry players working together to market Bermuda, we are starting to see some success in changing the perception and to truly demonstrate to the world what Bermuda has to offer," he said.

The report said that Bermuda's reputation for quality and regulation has been regarded by some as a double-edged sword in terms of its effect on the growth potential of its fund services industry, being well known for the extent of its due diligence on anyone wanting to do business on the Island, to protect its reputation, with firms seeking to form in the country having to undergo an extensive and often lengthy checking process.

But, on the flipside, it has led to the perception that incorporation in Bermuda is a difficult and time-consuming process compared to other places.

And the evidence is that a much larger number of hedge funds still set up in Cayman than choose Bermuda, particularly over the past five years, with many in the fund services sector believing that it was the case that a fund could be incorporated in the former in a fraction of the time it would take in the latter.

Bermuda, however, has responded by launching a 'Launch 'n' List' product last year as a result of a collaboration between the Bermuda International Business Association, the Bermuda Monetary Authority and the Bermuda Stock Exchange (BSX).

Meanwhile, Bermuda's biggest challenge is winning over those who prefer Cayman because it is what they know best, according to Mr. Harkness.

If Bermuda struggles to compete with Cayman in sheer numbers of fund incorporations, with only 1,200 registered entities, the report adds, it attracts a fair amount of business from those funds domiciled in its competitor looking for an administrator.

Fund administration in Bermuda, however, faces more competition across the globe from onshore locations such as London and New York to offshore bases like the British Virgin Islands, and even newer players to enter the market including Dubai and Qatar.

Mr. Harkness believes Bermuda has a bright future whatever the arguments for or against it as a leading financial offshore centre and destination for hedge fund start-ups.

"It's a stable and growing economy and the legislation framework and the government working hand-in-hand with industry has allowed us to keep ahead of the game in terms of global requirements and what funds are looking for from their providers."