The benefits and uses of Bermuda segregated accounts companies (SACs) to ring-fence assets and liabilities in insurance and investment fund structures are long-established. The Bermuda Supreme Court has consistently upheld confidence in, and the strength of the SAC.

In the private client sector, use of an SAC mutual fund company can be a unique addition to the usual combination of trust and corporate entities for wealth management. A private SAC mutual fund dedicated to a high-net-worth family may achieve flexible and diverse investment and inter-generational asset protection objectives, while offering a greater degree of engagement by family investors.


Affluent families often use a family office to preserve wealth and manage their affairs separately from their business activities. With family members and their wealth and interests spread out globally, contending with diverse legal and cultural considerations in their wealth and estate planning, family offices provide an integrated professional and administrative service, navigating today's highly regulated environment. The family office can be the central coordinator of specialist advisors to determine the best options for the family in terms of philosophy, governance and objectives, including strategic philanthropy.

The family office may also undertake the education of future generations. A chief concern is the need to share the family blueprint with the next generation and to involve them in the management of their own wealth in a controlled family mutual fund structure.


The family office incorporates a "personal" mutual fund company registered as an SAC. Segregated Accounts (accounts) may be created by the SAC to individually hold diverse assets or strategies. Each account may issue redeemable participating shares to members of the family and affiliates (in their personal capacity or through a buffer entity such as a company, limited partnership or trust).

They may become beneficial owners of the assets of the accounts through the participating equity. Separate trusts for different branches of the family may hold account-linked shares. A typical family office SAC structure may be depicted as follows:

Redeemable investment shares and associated investments are made available only to family members or their relevant trusts or trustees and would likely be regarded as a qualified private exempted offering.

By creating individual accounts with different investment strategies, the family may mix and match investment portfolios through equity subscriptions.

For example, an SAC may create separate accounts to hold commodities, publicly traded securities to be managed by a licensed US broker-dealer, and more speculative investments such as coal mines in Brazil. The liabilities of each account are segregated and ring-fenced. An investor may choose to invest in the accounts in any desired combination. Further, the shares may be gifted or held for succeeding generations as a nest egg in one or more trusts.

A Bermuda mutual fund SAC with fewer than 20 participants will generally qualify as an excluded private fund under the Investment Funds Act 2006 and will therefore be excluded from regulation by the Bermuda Monetary Authority. Certain investment funds eligible for exemption incur minimal reporting obligations. Audited financial statements for each account may be prepared or collectively waived by the investors.

Unlike unlimited partnerships, investors may also participate actively in investment supervision by appointing themselves or their advisors to investment committees for specific accounts without losing their status as limited liability investors.


Separation and Protection

An SAC affords greater protection against risks and losses, and insulates investments without the need to establish corporate entities. The failure of one account will not affect the solvency or viability of another, unless the latter has undertaken to underwrite the former.

The SAC structure permits portfolio diversity and solates the risk from each strategy. Each investment is ring-fenced and compartmentalised in respect of access to account reports and information.

In a trust structure, an obligation exists to act in the overall interest of every beneficiary. Investors/beneficiaries in an SAC may choose which account to invest in, according to their individual risk profile and diversification strategy, as each investment is separately owned and maintained. An investor (i.e. a family member or a related trust for their benefit) wishing to exit an investment strategy is able to redeem shares, providing greater flexibility than does a trust.

By law, account transactions may not be inspected by third parties with no interest in the account, potentially offering a wall of confidentiality from exited investors or other family members.

Individualised Dividends and Distributions

The account must be commercially solvent when paying dividends and distributions. There is no requirement for the SAC or all its accounts to be solvent when a dividend/ distribution is declared or paid from a solvent account.

Inter-account Support

With investors' consent, the SAC structure allows for one account to transfer assets to or financially support another account. For example, an account may enter into derivative contracts such as currency calls or put options, with another account providing collateral support to the first account. The supporting account is insulated against any direct claim by the trading counterparties of the first account.

The Offshore Benefit

In some instances there could be tax and other legal advantages of legitimately deferring income tax on dividends or capital gains tax from realisation of overseas investment assets, including arising from the redemption of the shares by a SAC that is managed offshore.

A unique feature of the family offshore SAC is for each account to be accompanied by a dedicated and separate "redemption account", for the sole purpose of receiving the proceeds of redemption of shares in the account, without repatriating the proceeds back to the home jurisdiction, possibly incurring a taxable event (see the illustration above). The investors would exchange their participating shares in the account for similar shares in the redemption account, effectively exiting an investment strategy and parking their proceeds in a ring-fenced fund held by the same SAC. Proceeds in the redemption account may subsequently be deployed for reinvestment in any other investment account of the SAC or to external investments.

Costs and Economies of Scale

The administration of separate trust and corporate entities can be costly. An SAC may have any number of accounts, at a lower cost per fund, while centralising administrative control in the same entity.

The family office can take on part of the role and functions of the investment manager or advisor to the SAC and charge a fee/commission to defray its administration costs. It may also fund family-oriented goals and projects. A family office/investment manager not operating within Bermuda need not be licensed or regulated in Bermuda.

Incorporated Segregated Accounts Companies

Bermuda has been exploring the potential for Incorporated Segregated Accounts Companies (ISACs). ISACs create incorporated accounts with separate legal identity, being advantageously severable from the ISAC core entity. This may prove attractive to members looking to create legally distinct governance for their accounts, but still share back-office functions and costs with the core ISAC, until they are ready to spin off an account into another entity.

Following the banking crisis, many wealthy families and their family offices have retreated from reliance on bank-affiliated advisors and taken greater charge and control. A bespoke SAC provides an efficient tool to hold diverse investment assets with minimal regulation and maximum flexibility for family or close-knit investors to chart their own financial course.

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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.