This article is Part 1 of a series of articles relating to the mutual fund industry in Bermuda. These articles are sponsored by The Bank of N.T. Butterfield & Son Ltd., Bermuda's first bank, and will include contributions by various legal, audit, investment and banking professionals in Bermuda. The articles are written to inform the reader of Bermuda's mutual fund industry.

Bank of Butterfield provided administration to one of the first mutual funds in Bermuda in 1969. Since this time, mutual fund administration has become one of Bank of Butterfield's core services. Bank of Butterfield, whose roots can be traced to 1785, has formally operated as a bank since 1858. As a full service commercial bank, headquartered in Bermuda, the Bank has expanded into Hong Kong, London, Guernsey, and Cayman Islands, to strategically position itself to enhance client services. Through its subsidiaries in each of these jurisdictions, the Bank provides administration to mutual funds, unit trusts and limited partnerships. These services include corporate administration, registration and transfer agency, accounting, valuation, and custody.


The Bermuda Islands were discovered in 1503 by the Spanish explorer, Juan de Bermudez, after whom they were named. Settlement did not occur, however, until more than 100 years later. At the beginning of the British colonization of the New World, Admiral Sir George Somers, leading a fleet carrying colonists to Virginia, was shipwrecked on the treacherous reefs surrounding Bermuda. The crew and colonists aboard his flagship, the Sea Venture, made their way ashore, and their arrival on 28th July, 1609 marked the beginning for the first permanent settlement of the Islands. Bermuda has been a British colony since that time and remains the oldest self-governing British Dependent Territory. Today tourism and international business represent the two main pillars of Bermuda's economy.

Bermuda, a tiny archipelago outcropping in the mid-Atlantic 590 miles east of North Carolina, is only a speck on the world map. On a global economic scale, however, Bermuda has long been recognized as a leading offshore financial centre. International business now contributes greater than fifty percent of Bermuda's gross domestic product, allowing Bermuda to have one of the highest incomes per capita in the world. At the end of March 1995, there were in excess of 8,000 international companies registered in Bermuda. These include investment holding companies, insurance firms, shipping companies, pension schemes, foreign sales corporations and mutual funds. Of these companies, more than 1,300 are engaged in offshore insurance, with total assets in excess of $60 billion.

Bermuda has also emerged as one of the leading centres for the establishment of offshore mutual funds, with several hundred mutual fund companies registered, in addition to unit trusts and limited partnerships. Bermuda attracts international business because of its stable economic and political environment, excellent communications, secure legal framework for financial and insurance operations, favourable tax structure, and the quality of service of its financial institutions.

There are many reasons for the continued and growing popularity of Bermuda as an offshore business centre including:

  • Easy accessibility through major gateway airports;
  • Its strategic geographic hub position between the U.S., U.K., Europe and the Caribbean;
  • Convenient Atlantic time zone (one hour ahead of Eastern Time Zone);
  • A stable, democratic British Dependent Territory governed by the United Bermuda Party, in power since 1968;
  • A legal system based on British Common Law;
  • An advanced telecommunications system;
  • A pristine physical and economic environment;
  • Bermuda is a member of the Organization for Economic Cooperation and Development (OECD), through its relationship with the U.K. as a dependent territory and has Designated Territory Status under Section 87 of the U.K. Financial Services Act 1986.

These factors, combined with its strong and highly regulated and professional infrastructure consisting of advanced banking, trust and investment services, and the absence of income or capital gains tax for exempt companies, serve to make Bermuda an extremely attractive location for establishing an exempt corporate entity.

Bermuda (population 60,000) has an excellent professional infrastructure with each of the Big Six accounting firms present plus eight others. A wealth of legal counsel is also available with in excess of 150 lawyers, most of whom specialize in international company activity. There are three international banks in Bermuda with correspondent banking to all major world banks. At the end of 1994, Bermuda banks had combined assets of approximately $11 billion and custody trust assets in excess of $50 billion.

These professional and banking firms are members of the Bermuda International Business Association (BIBA) which plays a major role in preserving Bermuda's integrity, competitiveness, and working with government to ensure growth through quality and non burdensome regulations.

Bermuda's mutual fund industry includes open-ended and close-ended companies, limited partnerships and unit trusts marketed worldwide, investing in any form of investment media such as securities, money markets, derivatives, real estate, emerging markets and venture capital. The number of collective investment schemes reported by the Bermuda Monetary Authority as of March 1995 was 600 funds registered in Bermuda, representing US $14.43 billion of net asset value.


For exempt companies, there are no income, profit or withholding taxes applicable in Bermuda, and no stamp duty or Government transaction taxes. The annual company tax is based on the Authorized Share Capital and ranges from $1,680 to a maximum of $25,000 for funds with capital in excess of $500 million. A no-tax undertaking is available from the Government on application, currently to the year 2016.

Bermuda Government revenues are primarily provided by import duties, payroll taxes and land taxes. Consequently, a mutual fund manager who elects to establish a physical presence in Bermuda, would have to pay payroll and land taxes (only if they owned land).


The Bermuda Monetary Authority (BMA) regulates mutual funds primarily by ensuring, at the formation stage, that certain pre-conditions of published policies are complied with. In addition, a prospectus law requires ongoing annual complying prospectuses to be filed with Bermuda's Registrar of Companies, although a fast-track procedure exists where funds are listed on certain of the major recognized world exchanges. Material changes in the particulars mentioned in a registered prospectus must be published in supplementary form and filed with the Registrar of Companies.

A mutual fund industry Code of Conduct was introduced in December 1994 to consolidate many existing standards and procedures. Bermuda offers an optional set of funds regulations which grant standards of investment protection and regulation deemed by the United Kingdom to be equivalent to those applicable in the United Kingdom and which, if chosen, enable Bermuda open-ended companies to be promoted to the general public in the U.K. This does not, however, afford access to the "Single Passport" UCITS Directive in the European Union, only access to the U.K. market itself. It does, however, gain access to a fast-track approval procedure by Hong Kong's Securities & Futures Commission for approval for distribution in Hong Kong.

A Code of Business Practice and Standards of Professional Conduct for Investment Advisors dealing with the general public in Bermuda was promulgated by the Bermuda Monetary Authority in late 1993. This Code, however, does not apply to mutual funds themselves, only to investment advisors actually dealing with the public in Bermuda.

Bermuda's Minister of Finance in early 1994 announced that additional securities laws would be passed to regulate investment advisory and management activities in Bermuda, responsive to the needs of the private sector which is seeing more and more investment and dealing activity handled from a Bermuda Base. The investment advisors' Code is, therefore, seen as an interim step only.

One of the keys to Bermuda's success as a mutual fund jurisdiction is the close relationship which exists between the Government and the private sector. Historically, both parties have worked as partners in the development of the industry. For some time, Bermuda has demonstrated that its regulatory framework is effective and workable.


Under Bermuda's Companies Act 1981 (as amended), a unanimous vote of shareholders and directors may waive annual financial statements and annual audits. However, government policies and industry practice require annual audits for mutual funds.

Bermuda is associated with the Canadian Institute of Chartered Accountants. Funds can be denominated in any currency, and may adopt any country's GAAP as long as it is disclosed in the investor reports and prospectuses.


The Bermuda Stock Exchange was incorporated by an Act of the Bermuda legislature effective 16th April 1993. Previously the Exchange had been operated for over twenty years as an unincorporated association. The new legislation placed the Exchange under the regulation of the Bermuda Monetary Authority, which also regulates financial institutions and collective investment vehicles in Bermuda. Daily trading was also recently introduced.

Currently the three Bermudian banks are the only trading members on the Exchange, but shortly other trading members will be admitted once membership criteria and trading rules are further developed.

Although the mutual fund stocks presently listed on the Exchange are only those incorporated in Bermuda, plans are in process for attracting foreign fund listings and secondary listings of companies incorporated elsewhere. One potential market is the large number of Hong Kong relocated companies now domiciled in Bermuda, which account for over half of both capitalization and the total number of companies listed on the Hong Kong Stock Exchange.


Collective Investment Schemes in Bermuda

			*Dec '93	Mar '94		Dec '94		Mar '95

Mutual Funds		248		268		318		322
Umbrella Funds		29		32		35		42
Sub-Funds operating
under Umbrellas		127		141		183		188
Total Mutual Funds	375		409		501		510
UnitTrusts		60		53		64		64
Umbrella Trusts		3		3		4		4
Sub-Trusts operating 
under Umbrellas		7		7		9		9
Total Unit Trusts	67		60		73		73
Partnerships		16		16		16		16
Feeder Trusts		1		1		1		1
Grand Total Collective 
Investment Schemes	459*		486		591		600
Total Net 
Asset Value (N.A.V.)    $11.2 Billion	$11.3 Billion   $13.7 Billion   $14.43 Billion
*Certain of the 1993 figures have been restated due to subsequent amendments by reporting institutions.
Source: Bermuda Monetary Authority

Bank of Butterfield will continue to publish articles relevant to the current mutual fund industry in Bermuda. An example of future contributions will include:

  • Companies Act 1981
  • Regulations and the Code of Conduct
  • Mutual Fund Administration - keys to selecting an administrator Limited Partnerships
  • Bermuda Stock Market - Listing for Funds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.