In a development that will interest insurance-linked securities investment managers, reinsurers looking to establish ILS or third-party capital fund operations and other institutional investors such as hedge funds, Bermuda has launched a new class of investment fund designed to be quicker to establish.
According to the Bermuda Business Development Corporation, Bermuda has taken steps to modernise its fund legislation to make it quicker, easier and more cost-effective to establish investment funds on the island.
To achieve this the Bermuda Investment Funds Act has been amended by the Bermuda Monetary Authority, after extensive consultation with the government and industry, to now provide for a new class of exempted investment fund. The new funds can be registered and launched in Bermuda on a fast-track basis using the Bermuda Monetary Authority’s online system called ERICA.
“Through extensive consultation with the Bermuda Monetary Authority and ongoing dialogue with investment management leaders who attended the BBDC’s Asset Management Summit in May 2013, the Bermuda Government passed the legislation to create a new ‘user friendly’ investment fund class that will enable an investment fund to register and launch in Bermuda within a faster time frame through a more streamlined process. We believe this will provide a significant competitive advantage in attracting hedge funds,” commented Dr. the Hon. E. Grant Gibbons, JP MP, Minister of Economic Development for Bermuda.
Investment managers can establish an “Exempt Class A Fund” provided it is regulated by a recognized authority, or has at least $100 million of assets under management. New Exempt Class A Funds can be registered on an expedited basis, and launched after completion and filing of an exemption notification and offering memorandum with the Bermuda Monetary Authority. The fee for filing the notice is competitively priced at $1,500.
Jeremy Cox, CEO of the Bermuda Monetary Authority, said; “Bermuda’s depth of experience in risk-based regulation has enabled us to build this new fund class within our framework, while also recognising the value of speed-to-market and staying focused on quality business. Our priority remains to balance appropriate and effective regulation with the jurisdiction’s goal to foster business development. These changes allow funds with qualified investors and which are regulated by a globally-recognized regulator to launch cost-effectively after an efficient notification and registration process. We are confident that this approach will make Bermuda more attractive for investment funds in the current global regulatory environment.”
Stephen Lund, CEO of the Bermuda Business Development Corporation, stated; “Bermuda is a very well respected jurisdiction and has tremendous regulatory credibility around the world with over 50 years of international business leadership. Bermuda stands out in an era where other jurisdictions are better known for being cavalier and risky in their approach. The onshore asset management industry asked Bermuda to develop an investment fund product that recognized regulators in other markets, enabling a fund to register and launch faster and more cost effectively. The Bermuda Government and the Bermuda Monetary Authority heard that request and developed a solution. This collaborative approach between the private sector, Bermuda’s Government and Regulator facilitated this rapid and critically important change that addresses these issues most important to the fund industry – cost, efficiency and speed to market.”
The Exempt Class A Funds can be established if an investment manager is in good standing with a globally recognised regulatory authority, such as the U.S. Securities and Exchange Commission or the United Kingdom Prudential Regulatory Authority; or if the investment manager is registered under Bermuda’s Investment Business Act; or if the investment manager has assets under management of at least $100 million. Investors must be qualified participants as defined by high income, high net worth or sophisticated private investors or institutional investors. The fund must have various service providers such as a prime broker, auditor or fund administrator and a local representative with access to financial information. The fund must also update the Bermuda Monetary Authority annually by June 30th and ensure that it continues to meet these qualifications.
Bermuda has also amended its Exempt Class B Funds to eliminate the requirement that a fund administrator be recognised and the requirement to file changes of service providers to the fund, but also added a minimum level of investment of $100,000 by qualified investors.
Lund added; “We believe that as funds focus on this development and combine it with regulation, cost, location and the availability of intellectual capital to oversee and administer their funds, Bermuda stands apart and will be the intelligent choice for investment funds.”
The new fund class will prove extremely useful to the markets Artemis covers. Reinsurers, many of whom are in the early stages of working out how best to embrace third-party capital, can take advantage of the fund legislation to quickly launch reinsurance-linked funds for investors. ILS investment managers may find Bermuda’s regulatory environment, combined with the ability to launch new fund structures quickly and cost-effectively, useful for speedily launching new ILS funds.
With Bermuda already a key hub for ILS, catastrophe bonds and the global catastrophe reinsurance market, it is likely that this new class of investment fund will be quickly adopted by the reinsurance-linked investment community.