Bermuda: BeesMont Law Guide To Investment Funds

1. INTRODUCTION

Over the years Bermuda has developed a highly regarded reputation and position as a substantive international financial centre with a strong focus on financial stability coupled with effective and efficient supervision and regulation for both local and international business. Through the efforts of the Government and highly skilled professionals from the legal, accounting and financial services fields and the oversight of the Bermuda Monetary Authority (BMA), Bermuda is committed to providing open, transparent regulatory frameworks and requirements, which are consistent with international best practice.

Underpinning the supervisory work programme is the BMA's risk-based philosophy which ensures that standards are appropriately calibrated to Bermuda's wholesale and domestic financial markets and that supervisory resources are applied to those firms which pose the greatest risk. The BMA's sensible and effective regulation of the investment industry provides suitable transparency and disclosure conditions which make Bermuda a globally respected jurisdiction. Further Bermuda has since the 1940s had legal requirements under its Exchange Control legislation to provide information on beneficial ownership of companies registered in Bermuda.

Bermuda is a tried and tested jurisdiction with a Government based on the Westminster system, with English common law and recourse to the Privy Council. Bermuda also has a specialist commercial division of the Supreme Court of Bermuda which offers a more bespoke service to commercial users of the courts. Bermuda therefore has specialist court rooms and specialist commercial judges with experience of all kinds of commercial disputes but particularly fund and insurance cases. Bermuda has adopted the English concept of "overriding objective" for commercial parties which is designed to ensure expeditious and proportionate justice. The commercial court has considered a wide range of fund disputes and most cases have been satisfactorily resolved at first instance with very few appeals to the Court of Appeal of Bermuda (which sits 4 times per year) and no investment fund appeals to the Privy Council.

Bermuda has access to capital and talent. It is the World's largest captive insurance centre and the third largest reinsurance market (after the USA and the UK) and more recently Bermuda has become globally the leading market for insurance linked securities (ILS). Furthermore, Bermuda has decades of experience in the banking, trust and asset management industries. As a consequence, Bermuda offers a deep talent pool of experienced and internationally trained professional service providers, which include fund administrators, asset managers, wealth managers, telecommunications providers, accountants, bankers and independent directors. Bermuda is a full service "one stop shop" jurisdiction enabling the Bermuda domiciled fund to be managed, administered, audited, listed and regulated all on the island. Bermuda's modern infrastructure enables clients to structure their funds so as to have all key players in one place allowing for streamlined daily operations and oversight.

Bermuda is a major centre in the international offshore investment funds industry with over US$165 billion of fund assets domiciled in Bermuda and a strong stable of fund structures listed on the Bermuda Stock Exchange (BSX) which was founded in 1971. The BSX is also the global leader in the listing of ILS offerings which have an aggregate market capitalisation of about US$13.5 billion. Several larger Bermuda based funds are quoted on leading international stock exchanges such as the Hong Kong Stock Exchange, Australian Stock Exchange, Singapore Stock Exchange and London Stock Exchange. The BSX is a fully electronic trading, settlement and depositary exchange and the only offshore platform which is a full member of the World Federation of Exchanges and is recognised by the SEC of the USA, the Financial Conduct Authority and HMRC of the UK and the Canadian Ministry of Finance.

Other advantages to using Bermuda as a domicile for an investment fund and/or administration is that it has a convenient location and an advanced and robust infrastructure. Bermuda is one hour ahead of New York and 4 hours behind London and consequently ideally located for transatlantic business. It is less than a 2-hour flight to New York (with US preclearance in Bermuda) and 7 hours to London (with daily flights in the summer). Bermuda demonstrated its infrastructure resilience in 2014 when after sustaining a direct Category 3 hurricane hit on a Saturday morning the central business district was fully operational at 8.30 a.m. on the Monday morning.

BeesMont Law has historically provided a strong investment funds practice and continues to be able to assist clients with specialised advice regarding investment vehicles and innovative structures. Our team has experience with a range of investment products including, but not limited to, the following;

  • Establishing investment vehicles (including equity funds, bond funds, infrastructure funds, private funds, index funds, alternative investment funds and private equity funds)
  • Segregated Accounts structures (including incubators/start-ups, umbrella funds, master-feeder funds, separate account management and ILS strategies)
  • Mergers and acquisitions (including changes to fund domicile)
  • Initial public offerings (debt or equity issues)
  • Preparing and advising on disclosure and filing requirements of the BSX
  • Listings of investment funds on any Appointed Stock Exchange
  • Preparing and negotiating contractual documentation
  • Schemes of arrangement
  • Advising investment management companies/administrators on corporate governance/operational issues and drafting standard form agreements

2. BERMUDA MONETARY AUTHORITY

The BMA was established in 1969 under The Bermuda Monetary Authority Act 1969 and is managed by a Board of Directors, with a chairman and chief executive officer. The BMA is responsible for the supervision, regulation and inspection of financial institutions which includes banks, custodians, broker dealers, administrators and investment managers. The sophistication of the BMA as a regulator has been recognised as Bermuda has been selected in the first wave of non-EU countries to be assessed in respect to the EU's Solvency II Directive and Bermuda has achieved conditional status as a designated qualified jurisdiction by the National Association of Insurance Commissioners of the USA. The BMA is a full voting member of the International Organisation of Securities Commissions.

3. INVESTMENT FUNDS

The Investment Funds Act 2006, as amended (IFA) governs the authorisation or registration and regulation of investment funds.

The IFA broadly defines investment funds as:

"any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income."

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