Bermuda offers regulatory clarity, as the Bermuda Monetary Authority (BMA) understands risk, supports innovation and has seen the convergence of many industries over the years.
This started with insurance and capital markets, which led to
Bermuda being a leader in insurance-linked securities (ILS) funds
and structures, evolving into private equity and long- term
insurance and now fintech and funds.
A considerable amount of institutional grade investment is
attracted to the jurisdiction given the value proposition and
diversification opportunities. Bermuda is credible and promotes
quality.
Climate and ESG
On the climate side, this of course continues to be a priority
and the BMA in its 2024 Business Plan − drawing on the
importance of its ESG strategy − is working with the
investment funds industry to set up a new framework that
facilitates the ability to designate certain Bermuda funds as ESG
compliant.
Bermuda's fund legislation continues to be flexible and has a
'menu' approach which lends itself well to sponsors wanting
to choose the authorisation classification that best serves their
needs, goals and investor base, while at all times remaining
appropriately supervised by an internationally recognised and
respected regulator.
The Island is a pivotal player in mitigating climate risk and
building resilience for people, communities and business all over
the world, through the insurance and reinsurance markets and in
attracting capital through alternative investment vehicles.
We also see flexibility in the types of structures that are
available to the market, be that limited partnerships for private
equity funds (which can elect to have legal personality and do
not
need to have a local general partner), companies limited by shares,
limited liability companies (LLCs) which can expressly provide in
the governing instrument that maximum effect be given to the
principle of freedom of contract, segregated accounts companies
(with the ability for one cell to invest in another cell in the
same structure) or incorporated segregated accounts which allows
for separate legal personality between accounts − which lends
itself to numerous possibilities of having different risk
pools/investment strategies co-existing under one umbrella
structure, leveraging governance efficiencies − each licensed
according to its individual business needs. For instance, it is
possible to have a licensed investment manager in Cell 1 alongside
a fund issuing tokenised shares in Cell 2 and a traditional closed
end fund in Cell 3.
Bermuda provides significant benefits as a transparent, compliant
and stable environment for funds and asset management. It is a
global compliance and transparency leader and is considered by the
EU to be a fully cooperative tax jurisdiction. At the end of 2023,
the Bermuda Parliament passed legislation enacting a corporate
income tax regime, the Corporate Income Tax Act, 2023 (CIT Act)
which will become effective for tax years beginning on or after 1st
January 2025. In general, as is the case with the OECD Global
Anti-Base Erosion Model Rules (Pillar 2) (the GloBE Rules), certain
entities are excluded, provided they meet the applicable
conditions, including investment funds, pension funds and sovereign
wealth funds.
AIMA Bermuda is working closely with industry participants,
including the International Tax Working Group, to understand the
implications of the introduction of the CIT Act and to ensure that
the funds industry is appropriately represented.
As well as having regular dialogue with the BMA, the Registrar of
Companies and the Minister of Finance, AIMA Bermuda continues to
provide educational and networking opportunities for its members
and works closely with the wider global network, in particular New
York.
Digital
Another key development is the industry's digital
transition, as the integration of new technologies and artificial
intelligence (AI) continues apace.
When it comes to utilising technology and innovation to sustain
operational effectiveness, Bermuda is very well placed to drive
this space. This is in part due to Bermuda being an early adopter
of robust Digital Asset Business legislation but also due to the
approach of the BMA and Government of Bermuda in encouraging and
promoting this innovation in a pragmatic way, whether that be using
regulatory sandboxes to allow ideas to be tested in a safe and
appropriately supervised environment or in streamlining legislation
and processes in complementary sectors (investment business,
digital assets and funds) to avoid unnecessary duplication.
Asset managers looking to establish outside of the US in order to
be able to trade on crypto exchanges in Europe, are considering
Bermuda as an ideal location given its proximity to the US and the
quality of lifestyle on offer.
Insurance linked securities (ILS)
Bermuda is particularly well known for its expertise and leadership in the ILS sector. ILS funds allow investors to access insurance-linked risks, such as those related to natural disasters. Investors in this area are very sophisticated, including pension funds and sovereign wealth funds. At the end of 2023, the Bermuda Stock Exchange's ILS and cat bond listings were nearing a new high of $60 billion in listed value, while the BSX ended the year as host to some 91% of the listed property catastrophe bond marketplace.
Private equity
Bermuda continues to see interest by private equity and
alternative asset managers looking to invest in the Bermuda
insurance market. We have seen a corresponding uptick in sponsors
choosing Bermuda as their jurisdiction of choice in which to
establish their private equity structures.
Private equity funds are a popular investment vehicle for
institutional investors who are seeking to achieve long-term
capital appreciation. Bermuda's legal system provides a high
degree of certainty and predictability, which is essential for
private equity funds that need to manage risks and protect
investors' interests. Funds can be structured as limited
partnerships, LLCs or companies to suit the investor base and
preference.
Why Bermuda?
In the international alternative investment fund space, Bermuda
remains a compelling jurisdiction. Investment funds are a popular
investment vehicle for sophisticated, high-net-worth individuals
and institutional investors who are seeking to achieve high returns
while managing risks. Bermuda's robust regulatory framework
combines efficiency and effectiveness, as it has been designed to
provide a balance between investor protection and business
flexibility.
Bermuda's sophisticated legal system, tax efficiency and
excellent infrastructure have made it a world-class financial
centre and an attractive location for asset managers who are
seeking to establish funds that are flexible and responsive to
investor needs. In addition, a world class regulator, the BMA,
known for its transparent and collaborative approach to regulation
and the Island's geographical location, being just 90 minutes
from New York, two or three hours from major US East Coast cities
like Atlanta and Miami and six hours direct flight to London,
England, all combine to make it a jurisdiction of choice. Bermuda
will certainly be a jurisdiction to watch as it continues to
harness its existing reputation and experience to further drive
innovation and growth in the areas of ESG and digital assets.
This article was first posted in the 2024-2025 edition of the Bermuda Business Review. Find the full publication here.
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.
