Bermuda – A Hub for Hedge Fund Administrators

By Sarah Demerling (nee Moule), Counsel, Appleby, Bermuda (01/04/2011)

Spring marks a special time for inhabitants of Bermuda. The deep waters off the South Shore provide spectacular views of migrating humpback whales breaching close to shore. These majestic creatures are no doubt oblivious to the legislative and regulatory framework close by that supports over 40 licensed fund administrators based in Bermuda. But if they knew, perhaps they would even see some similarities. Just as whales migrate to warmer waters to breed and nurture their young, so Bermuda’s mid ocean platform, strategically positioned in the offshore world, is an ideal base for administrators to develop hedge fund start ups and other investment opportunities, perhaps even rivaling the humpback’s spectacular leaps.


Ease of incorporation, clear legislation, reputable regulatory bodies, listing options and robust service providers combine to make Bermuda a premier choice of jurisdiction for fund administrators and funds alike. In fact, many offshore funds located outside of Bermuda choose the services of a Bermuda fund administrator as Bermuda is seen as a centre of excellence in fund administration.


Living the Dream

Bermuda is not only a favourable environment for funds related business. The Island’s social calendar is filled with events for residents and visitors throughout the year. From professional and amateur sporting events (including the PGA Grand Slam event) to the culture-soaked film festival, there is always something happening. Fortunately Bermuda is now more equipped than ever to play host to international business. According to Doug Soares of the employment firm Expertise Ltd the Island “is in a much stronger position today to accommodate international business start-ups than it was during the first [reinsurance] waves in 2001 and 2005.” Mr Soares also adds that the immigration department has become increasingly efficient in handling work permits which are “being processed very quickly nowadays.” From social activities to infrastructure, Bermuda has all the attributes of a funds-friendly jurisdiction.


Bermuda is also a significant force in the global insurance/reinsurance market and hence internationally accepted as a well regulated institutional centre. In 2010, Bermuda's insurers recorded aggregate total assets of US$496 billion and gross premiums written for the same year were in excess of US$100 billion.




Administrators can easily form an “exempted” company to carry out business in or from Bermuda. They are so-called because they are exempted from those provisions of Bermuda law which stipulate that at least 60 per cent of the equity must be beneficially owned by Bermudians.


Incorporation of such an entity is initiated by the reservation of a company name through the Registrar of Companies (‘ROC’). Concurrently the Bermuda Monetary Authority (‘BMA’), the Island’s primary regulatory body, reviews the name, the nature of the intended business, and the proposed ownership of the company. All companies, of course, are subject to well-established and recognised vetting procedures that are strictly adhered to by the BMA. Bermuda prides itself on its reputation as a well-regulated jurisdiction with strong Know Your Customer requirements. 


Next, the Memorandum of Association, stating the share capital of the company (there is no minimum capital requirement) and its division into shares of a specified par value; whether the liability of the shareholders is limited or unlimited (usually limited); and the objects (ie, business purposes) and powers of the company is submitted to the ROC. The incorporation of a company with the ROC can be carried out in as little as 24-48 hours.  


Administrators wishing to set up business in Bermuda must also be licensed (see below).


Bermuda funds (investment funds) are usually formed as limited liability exempted companies, limited partnerships or unit trusts, or segregated accounts companies. Limited partnerships are made up of one or more general partners and one or more limited partners whose relationship is governed by a partnership agreement (and by the Limited Partnership Act 1883). It is now possible for a partnership to elect to have legal personality such that the partnership will survive the death or bankruptcy of partners, or a change in the partnership constitution.


Alternatively, a trust can be used where a trust deed sets out the contractual relationship between a beneficiary and a trustee. Units of the trust can be offered to investors and liability is generally limited to the amount of the trust fund.  


Bermuda also has segregated accounts legislation which provides a legislative framework for ring-fencing assets and liabilities. Segregated accounts companies are used to establish master-feeder structures and segregated managed account platforms.



The Investment Funds Act 2006, as amended by the Investment Funds Amendment Act 2010 (‘IFA’), presents a clear and straightforward legal basis for the establishment and supervision of investment funds and fund administration in Bermuda.


The IFA stipulates that administrators must be licensed before carrying on fund administration business in or from Bermuda. Licensees must meet certain minimum criteria requiring, inter alia, that the administrator maintains minimum net assets of US$50,000.00 or more, that the business be conducted in a prudent manner, and that the controllers and officers be fit and proper persons.  The licence application process involves sending a business plan that sets out the nature and scale of the business (and fee of US$7,875.00) to the BMA for review.


The IFA requires administrators to notify the BMA where there is a prospective change of control. The BMA may then object to this change where the BMA has reason to believe that the controlling party would not be a fit and proper person. Any decision made by the BMA can be appealed by the administrator. In addition to the above, the IFA stipulates that the administration business must be directed by a minimum of two individuals.


Helpfully there exists a Code of Conduct for Fund Administrators and guidance notes for prospective applicants both published by the BMA.




There are no taxes on profits, income or capital gains in Bermuda. There is a payroll tax of 14 per cent (recently reduced from 16 per cent, effective 1 April 2011). Exempted companies, partnerships, and unit trusts are able to obtain from the Minister of Finance (‘Minister’) under the Exempted Undertakings Tax Protection Act 1966 an assurance from the Minister so that, in the event of taxation being imposed after the formation of the entity, the entity will be excluded from such tax until 28 March 2016. The Minister has recently announced that this period will be extended to 2035. Such assurance, however, does not prevent the application of any such tax or duty to such persons as are ordinarily resident in Bermuda.


Importantly, investors who do not reside in Bermuda are not subject to income, capital gains, corporation, capital transfer, estate duty or inheritance tax. Nor are they compelled to return any filings with the Bermuda Government. 




Bermuda’s regulatory framework is overseen by the BMA. The Proceeds of Crime Regulation (Supervision and Enforcement) Act 2008 (the ‘Supervision Act’) and the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 (the ‘Regulations’) provide safeguards customarily looked for by administrators in connection with anti-money laundering. The main obligation placed on administrators is to put in place adequate controls and policies (such as Know Your Customer) to negate the risk of money laundering and terrorist financing related business activities.


The BMA also has powers to investigate and gather information from operators, service providers and administrators of authorised funds. Any information gathered during such an investigation will be kept in confidential channels throughout.  


Bermuda is making efforts to qualify as a ‘third country’ for the purposes of the EU Alternative Investments Fund Mangers Directive, when implementing measures are finalised. At present this involves Government consultation with the funds industry, a good example of the public/private partnership between the funds industry and the Bermuda Government.  


Bermuda’s regulatory authorities continue to ensure that its regulatory standards meet or exceed international best practices in order to preserve the Island’s well-deserved reputation for probity.



The Bermuda Stock Exchange (‘BSX’), in operation since 1971, represents an excellent avenue to international markets for funds. The BSX is the world's first fully electronic offshore securities exchange market. It has over 800 listed securities, including over 360 funds. The BSX is recognised by the Securities and Exchange Commission as a Designated Offshore Securities Market (under Regulation S) and by the Financial Services Authority in the UK as a Designated Investment Exchange and has a combined market capitalisation of over US$225 billion. Conveniently there are no minimum capital requirements for institutional funds, nor are there investment restrictions, allowing for greater flexibility for hedge funds and prime brokers.


The appropriately named “Launch & List” (collaboration between Business Bermuda, the BMA and the BSX) makes it possible for funds to be simultaneously authorised and listed in less than two weeks. The elimination of duplicated effort not only reduces time to market but also reduces costs.  



Service Providers

Bermuda offers an excellent array of service providers with a depth of offshore fund experience. The Island's financial services sector includes sophisticated international banking and investment management services.  All the major global accountancy firms are represented on the Island. The Island also has excellent telecommunications links and technologically advanced e-commerce infrastructure.


There is also a variety of recruitment firms and relocation experts to assist with incoming residents.



Just as the nutrient rich gulfstream waters of Bermuda attract the humpbacks, the location, lifestyle, clear legislation and robust regulatory regime continue to entice administrators to Bermuda. Contact Appleby, the leading provider of offshore legal, fiduciary and administration services, for more information.