By Craig Bridgewater – In a global environment in which clients are placing increased emphasis on greater quality and transparency among providers of alternative investments and put a premium on trust in their relationships, Bermuda is well positioned to capitalise on its established reputation for expertise and effective regulation to expand its position as a fund domicile with appeal in markets around the world.
Over the past few years KPMG has been closely involved in the development of the Bermuda fund industry. In addition to helping managers set up new funds, handle ongoing issues and deal with the increasing global tide of regulation, we have also played a major role in helping funds work out some of the questions arising from the global financial crisis starting in 2008, including handling illiquid investments and redemption constraints.
Today it’s important that Bermuda offers a flexible and efficient regulatory framework that bears comparison with any rival offshore financial centres. However, it is also extremely competitive from the perspective of incorporation and establishment costs as well as ongoing fund operation expenses – an important factor at a time when managers around the world are taking longer to attract investment and cost issues are critical for start-up funds.
For example, incorporation and set-up charges are in many cases lower than in other fund domiciles, and while most Bermuda funds are audited, there is no obligation to obtain a local audit sign-off for either a master or feeder fund – a significant consideration over the lifetime of a fund, for example, for a Singapore-based investment manager of a Bermuda fund that can use an auditor in its home jurisdiction.
However, Bermuda has never made competing on the number of registered funds a priority. Managers who establish funds in Bermuda do so because of the quality of the jurisdiction, the ability to develop close relationships with service providers, and the reassurance to investors provided by the regulatory oversight of the Bermuda Monetary Authority.
While the BMA has been active in reviewing the island’s regulatory framework, from fund legislation to codes of conduct, the regulator has strived to maintain the flexibility of the fund regime, appropriate to an industry that serves exclusively institutions and other sophisticated investors.
That said, corporate governance has become a more important consideration for the industry in the wake of the crisis. The government’s recent changes to Bermuda’s Companies Act has made it possible to use corporate directors for the first time. This change could well help to boost the quality of corporate governance by bringing into the industry people who specialise in directorship roles, do the job on a full-time basis, and can bring more value to fund boards.
These developments are taking place in an environment where stability has returned, economic activity has resumed and confidence appears to be returning to the fund industry. Bermuda is continuing to win good quality business as existing clients start to grow again and to launch new products.
One important initiative that promises to help Bermuda develop niche business areas is the development, at the initiative of the BMA, of jurisdiction-specific legislation designed to help the fund industry target new markets. This involves measures under the Investment Funds Act that will satisfy regulatory oversight requirements and/or investor preferences in another jurisdiction. Such legislation now exists for funds targeting distribution to Japanese investors, and further tailored legislation may be introduced in the future as opportunities arise.
Craig Bridgewater is a partner in KPMG’s Bermuda alternative investments and banking practice