Bermuda
Investment Fund Management
Collective
investment schemes in Bermuda had assets
worth in excess of $178 billion as of
2006. In recent years Bermuda has become
a popular location for the registration
of Japanese investment funds.
The Bermuda Monetary Authority (BMA)
regulates the collective investment
industry and vets new applicants to
determine their qualifications and experience.
A draft prospectus is required as well
as evidence of the investment experience
of the fund manager and details of the
promoters' background. The BMA does
not necessarily expect promoters to
be internationally-recognised investment
houses, and will normally give permission
fairly readily if it thinks that a fund
will be honestly and competently managed.
In 1994, Bermuda introduced a Code of
Conduct for Collective Investment Schemes,
which although strictly speaking voluntary,
amounted to the 'rule-book' of the sector.
In
June 2004 the Bermuda International
Business Association reported that strong
gains in the collective investment sector
in the latter half of 2003 were evidence
that Bermuda had taken the right steps
with recent economic and regulatory
policy. The statement by BIBA was made
in response to a report by the Bermuda
Monetary Authority revealing encouraging
year on year gains in the total net
asset values of collective investment
schemes in the third and fourth quarters
of 2003.
Promoters
of funds in Bermuda can either form
their own management company for a scheme
or select an existing Bermudan management
company. A Bermuda bank must be appointed
as custodian although sub-custodians
are permitted. Similar regulations apply
to the functions of registrar and transfer
agent. The minimum capital requirement
for a mutual fund used to be $12,000,
but in 2000 was reduced to $1. This
change allows a fund to issue a small
number of Founder voting shares and
a larger number of non-voting, redeemable
shares (say, 10m at $0.001 each) while
still remaining below the $12,000 level
of authorised capital up to which the
minimum fee of $1,780 (at the time of
writing) is due.
See
Offshore Tax Regimes
for details of suitable corporate forms.
The
UK Financial Services Act 1986 (UK)
included Bermuda as a "designated
territory". Mutual funds which
have been certified as UK-class schemes
by the Minister of Finance in Bermuda
can apply in the United Kingdom for
classification as "recognised schemes".
The funds can then be promoted to the
public in the United Kingdom in a similar
way to UK authorised unit trusts. Such
funds use the limited liability company
form. Funds formed under trust are sometimes
preferred for use in other parts of
the world.
The
Investment Business Act 2003, which
came into force at the end of January,
2004, provides that any person undertaking
investment business in or from Bermuda
must hold a licence from the Bermuda
Monetary Authority (BMA), unless they
qualify for an exemption. The
IBA also prohibits persons from entering
into an investment agreement with an
individual in the course of or in consequence
of an unsolicited call made on that
person.
Bermuda’s
Finance Minister, Paula Cox pledged
in April, 2005, to simplify the incorporation
procedures for new investment funds
in an attempt to increase the attractiveness
of the jurisdiction to mutual funds
and hedge funds. New funds will no longer
need the Minister's permission to incorporate
in Bermuda, nor will they be required
to undergo the full classification process
before incorporation.
The
move brought Bermuda more into line
with other offshore fund domiciles such
as the Cayman Islands and the British
Virgin Islands, both of which have been
successful at attracting investment
funds in large numbers.
A
government statement indicated that
the collective investment schemes will
be designated as unrestricted companies
under the Companies Act.
"There
is a keen willingness by the Ministry
to ensure that the right balance is
struck so that there is the requisite
regulatory oversight coupled with a
need to ensure that Bermuda maintains
its competitive position as a premier
financial services jurisdiction," Cox
noted.
Draft
legislation was drawn up in 2005 intended
to improve the quality of Bermuda's
financial service providers and raise
the level of protection for investors,
known as the Collective Investment Schemes
Act 2005 (CISA 2005). This culminated
in the Investment Funds Act, passed
in December 2006, which outlines more
clearly how public funds are regulated
and refines the framework for non-public,
institutional funds.
The
IFA 2006 was soundly endorsed by the
funds industry representatives, including
the Bermuda International Business Association.
“This
is yet another example of the positive
results of collaborative consultation
between Bermuda’s private and
public sector partnership," announced
BIBA CEO, Cheryl Packwood.
She
continued:
"When
the Ministry of Finance and the Bermuda
Monetary Authority (BMA) commenced writing
this Act, as is the policy in Bermuda,
they asked for the input of the Financial
Industry in reviewing and recommending
pertinent changes or additions to it
prior to presenting the Act before the
House of Assembly."
The
bill has the following key features:
