November 24, 2016

Bermuda set to recapture greater share of offshore fund industry

Bermuda is the quintessential Anglo-American blue-chip jurisdiction, both culturally and geographically. As an interface between the US and Europe, through its diversified service provider industry the island offers deep multi-jurisdictional expertise and has foremost become known as offshore jurisdiction with a dominant insurance and reinsurance presence. Fifteen of the world’s top 40 reinsurers are based in Bermuda, making up about 36% of the global reinsurance market based on property/casualty net premiums earned. Bermuda is also leading the world in the issuance of insurance-linked securities (ILS), predominantly catastrophe bonds, representing 70% of total outstanding ILS capacity. If you are in reinsurance or in ILS, Bermuda is the place to be.

In fact, Bermuda hasn’t just recently opened up for business, but has been around and continuously expanded its international role since Juan de Bermudez discovered the island in 1505 and the first settlement was established in 1609, making it the oldest continually inhabited English settlement in the New World. By the end of the 1970s, international business had supplanted tourism as the dominant sector of Bermuda’s economy, and not too long ago, in the 1980s and ’90s, Bermuda was the domicile of choice for offshore funds. All the old hands in the industry will remember the MARHedge conferences at the Fairmont Southampton hotel, which was the go-to event for over a decade. Then, the flow of business slowed, as other jurisdictions decided to focus primarily on that industry and overtook the jurisdiction.

More recently, Bermuda has been working hard to recapture a greater share of the offshore fund pie and fine-tuned products and services. Participants at this Roundtable point out that there has never been a discontinuation or gap in the quality of Bermuda’s offering, but the jurisdiction “just stopped doing marketing”. For a long time, asset managers like Orbis, a firm with 400 people and around $30 billion AUM, are headquartered in Bermuda – in Orbis’ case already for over 27 years. In the current focus on diversifying Bermuda’s international business base, particularly the asset management sector has become a beneficiary and is expected to grow further.

Bermuda expects high growth from end of worldwide banking secrecy

Two additional factors are having a material – and positive – impact on Bermuda. The first is the end of banking secrecy, and by definition the inevitable decline of jurisdictions that had built their offering mainly around providing secrecy rather than delivering a more comprehensive solution. Banking secrecy is effectively a thing of the past, and we are only just beginning to see the effects of this transformation. The players in Bermuda believe the jurisdiction will continue to be a meaningful beneficiary of this shift because it has never been a business destination where people came to look for secrecy. Historically, companies and individuals have sought to do business in Bermuda for reasons other than secrecy: political stability, legal security, the quality of service providers, cost efficiency, the strength and depth of the labour pool and other factors. Regardless of the growth of the asset management industry globally, Bermuda is in a unique position to capture significant market share going forward. Many businesses will be looking for a new home in the coming years and secrecy will no longer be a factor in their decision-making process.

The second factor is the convergence between insurance and asset management – that is, the rapid emergence of ILS as a validated asset class that transcends pure reinsurance. The ILS space has flourished over the last 3-4 years and this sub-segment of the asset management space has made Bermuda its location of choice. The high level of expertise and experience among the service providers in Bermuda in dealing with more complicated instruments also holds for private equity funds and other alternative investments.

New regulatory developments and Solvency II equivalency

Bermuda’s new LLC legislation has been drafted to be very similar to the legislation in Delaware. Any LLCs established under the Delaware looking to set-up an offshore vehicle will find Bermuda an attractive option. Efficiencies can also be achieved as items such as the constitutional documents for the onshore entity can be easily adapted for the Bermuda legislation, providing both cost and time savings.

Bermuda has always had a very highly regarded reputation from an AML perspective, and its new AML regime is setting the bar even higher. For example, high value dealers and real estate agents are now also part of the AML regime. In addition to having a strong regulatory regime, Bermuda has numerous international tax treaties and signed up for CRS, CBC and FATCA reporting and assists competent international authorities with investigations when requested, particularly regarding beneficial ownership of entities registered here. It is also one of the first twelve countries the European Securities and Markets Authority (ESMA) has been assessing in regards to extending an AIFMD passport. What helps in this process is that Bermuda already has Solvency II equivalency with the European insurance market system. Bermuda thinks its value proposition will be especially strong for US-based managers looking to market into Europe. The Opalesque Bermuda Roundtable took place at the office of Bermuda Business Development Agency (BDA) in Hamilton with the following experts:

  1. Hugh Gillespie, Orbis Investment Management
  2. Alison Morrison, Oyster Consulting
  3. Aaron Burrows, Harneys
  4. Craig Bridgewater, KPMG
  5. Daniel Tafur, Equilibria Capital Management
  6. Sean Moran, Bermuda Business Development Agency

The group also discussed:

  • Is Brexit an opportunity or threat to Bermuda?
  • Which conferences are the new go-to events in Bermuda?
  • The benefits of having a dedicated commercial court
  • Which are Bermuda’s new policies regarding work permits?
  • Can overseas lawyers give advice in Bermuda law matters?
  • Are the ‘Panama Papers’ having a positive or negative effect on Bermuda?
  • Quality of life and productivity: Why Bermudians think their island tops onshore
  • How are businesses in Bermuda coping with the hurricane risk?
  • How can funds be registered in Bermuda within one day?
  • Which are the benefits for family offices operating from Bermuda?

To read the full Opalesque report, click here

Source: Opalesque

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