bermuda mena-2011

FEATURING

- Altree Financial

- Apex Fund

Services

- Bermuda

Commercial

Bank

- Bermuda Stock

Exchange

- Business

Bermuda

- Conyers Dill &

Pearman

- Government of

Bermuda

- PwC

OPEN FOR BUSINESSBermuda actively strengthens links with

the Mena region

SHARIAH-COMPLIANT FUNDS Takaful, retakaful, mudarabah, musharakah

and sukuks

INTERNATIONAL RECOGNITIONThe island’s excellent international reputation

as a gateway to multiple markets

M E N AF U N D M A N A G E R

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D I S T R I B U T E D W I T H M E N A F U N D M A N AG E R

I N A S S O C I AT I O N W I T H

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Having a global perspective

At PwC Bermuda we provide a broad range of assurance, tax and advisory services to asset managers, hedge fund, private equity and infrastructure funds with multi-jurisdictional structures, including emerging markets, and with different investment strategies including Shariah-compliant funds. Our asset management group has close working relationships with Islamic finance specialists in other PwC network firms to ensure our clients receive the best quality service and advice available.

© 2011 PricewaterhouseCoopers. All rights reserved. In this document, “PwC’ refers to PricewaterhouseCoopers (a Bermuda partnership), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

www.pwc.com/bermuda

Asset Management and Islamic FinanceScott [email protected]

Belaid [email protected]

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Contents04 Introducing the jurisdictionThe Hon. Patrice K. Minors, minis-ter of business development and tourism, welcomes readers to this prestigious report and highlights her island’s links with the Mena region

06 Bermuda: the ideal host for Islamic financeCheryl Packwood of Business Bermuda shows how the jurisdic-tion is perfectly set up for the Islamic finance industry

09 Reaping the benefitsPeter Hughes of Apex Fund Services explains how the firm’s Bermuda office enhances its glo-bal network as well as champion-ing local needs

12 Your domicile of choice for Shariah-compliant fundsBelaid Jheengoor of PricewaterhouseCoopers explains how Bermuda is encouraging the development of Islamic finance

17 A local service with global reachAltree Financial talks to MENA FM about the mutually beneficial links between Bermuda and the Mena region

20 All shapes and sizesS Randy Morris of BCB Fund Services Limited explains how a hands-on, fully comprehensive administrative service can help your investment fund – whatever its size

22 Rising to the challengeFawaz Elmalki of Conyers Dill & Pearman explains how offshore domiciles are meeting investors’ new demands

24 Onwards and upwards Greg Wojciechowski of the Bermuda Stock Exchange explains how Bermuda is put-ting a challenging year behind it, and looking forward to expan-sion into the Mena region in the months ahead

Report editor Elizabeth Goodwin

+44(0)207 029 [email protected]

Reporter Annie Roberts

+44(0)207 029 [email protected]

Production editor Claudia Honerjager

Sub-editor Rachel Kurzfield

Design Matt McLean

Publishing Director Nick Morgan

+44 (0) 207 029 4091 [email protected]

Associate publisher Thomas O’Riordan

+44 (0) 207 029 4031 [email protected]

Publishing manager Ché Feenie

+44 (0) 207 029 4033 [email protected]

Business development manager Larissa Matley

+44 (0) 207 029 4093 [email protected]

Circulation manager Fay Muddle

Subscriptions Ben Privett

+44 (0) 20 7029 [email protected]

Editorial directorGwyn Roberts

Chief executiveCharlie Kerr

Printed by Wyndeham Grange © 2011 all rights reserved. No part of this publication may be reproduced without written permission of the publishers. ISSN 1759-1880Pageant Media Ltd is a certified member of thePeriodical Publishers Association.

MENA is published by Pageant Media Ltd London: 1 East Poultry Avenue, London EC1A 9PT Tel: +44 (0)20 7029 4000 Fax: +44 (0)20 7029 4001

M e N AF u n D m A n A g E R

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Feature welcome

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Introducing the jurisdictionThe Hon. Patrice K. Minors, minister of business development and tourism, welcomes readers to this prestigious report and

highlights her island’s links with the Mena region

government of bermuda

It gives me great pleasure to in-troduce this special supplement to mena fund manager. Ber-muda has forged strong links in the middle east in recent times

and especially with the Gulf co-op-erative council (Gcc) region.

The strategic relationship that has emerged with the Kingdom of Bahrain especially is an obvious one given the similarities between the two islands – both have rather small populations and rely heavily on the financial services sector.

Bermuda’s commercial ties with

the Gcc include the use of the dom-icile for family offices and for invest-ment companies. In addition, many of Bermuda’s insurers and reinsur-ers provide the risk coverage that is essential to the region’s infrastruc-ture projects and we increasingly see investors from the Gcc region making valuable direct investments in our tourist industry.

Bermuda and the Gcc can and will continue to work together to build on the relationships that have already been formed and we hope to forge new ones.

Last July, then-minister of finance (now Premier of Bermuda) the Hon. Paula cox led a highly success-ful trade mission to Bahrain, with a delegation from the ministry of fi-nance, including then-finance Sec-retary (now cabinet Secretary) mr Donald Scott, and representatives from the Bermuda private sector.

we met H.e. Sheikh ahmed bin mohammed al-Khalifa, Kingdom of Bahrain’s minister of finance, as well as local business leaders. The two countries jointly sponsored the first Kingdom of Bahrain/Bermuda

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conference on global financial and insurance services during that trip.

Developing a strategy for Islamic finance in Bermuda, attracting in-vestors, capital and businesses from the Gcc region fits perfectly with my Government’s stated objectives of expanding the economy and jobs creation.

a significant step forward in the development of Islamic finance in Bermuda was the signing of a dou-ble taxation agreement with the Kingdom of Bahrain. This agree-ment will help to enhance business ties and investment opportunities with the Kingdom of Bahrain, which is itself an important Islamic finance hub within the region.

The recent credit crisis strength-ened the case for alternative in-vestment approaches and different ways of raising capital in the global capital markets. against that back-ground, Shariah-compliant financial products and services are set for growth.

my government welcomes Islamic finance. Bermuda stands on its rep-utation for the highest standard of integrity and honesty in its econo-my, which are prerequisites for the successful development of an Is-lamic finance industry.

as a world-class financial cen-tre, Bermuda offers Islamic inves-tors the same advantages that have made it the domicile of choice for the world’s leading investment companies, banks and of course re-insurers.

Bermuda’s legislation is robust, but it is flexible enough to accom-modate innovative Islamic financial products and structures. In fact, the first sukuk to be based on owner-ship interests in aircraft assets and rights came from Ge capital Sukuk, a Bermuda exempted limited liabil-ity company.

Bermuda is literally in the right place at the right time to build on its strong investment fund industry and develop innovative Shariah-

compliant funds, sukuk, and wealth management products. where other jurisdictions have growing tax and regulatory impediments, Bermuda has tax neutrality and an effec-tive, non-discriminatory regulatory framework.

The strategic relationship be-tween the Kingdom of Bahrain and Bermuda is a natural one. firms based in both countries provide a broad range of financial services to clients based in other jurisdictions. as H.e. Sheikh ahmed bin moham-med al-Khalifa has pointed out, the combined assets of the financial in-dustry in both countries amount to many multiples the size of their re-spective economies.

we can use these shared ambi-tions to our mutual advantage by exchanging expertise and ideas. I am sure that this special publication will contribute to further explora-tion of the exciting potential syner-gies and opportunities that exist on both sides.

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Bermuda: the ideal host for Islamic financeCheryl Packwood of Business Bermuda shows how the jurisdiction is perfectly set up for the Islamic finance industry

BErmuda

that Bermuda is an important international financial centre comes as no surprise to those in the industry, but that Bermuda is a leading player in the Islamic

finance industry, one of the world’s fastest growing asset classes, is more unexpected.

Some investors might wonder why Bermuda places such an emphasis on a sector that would seem on the sur-face to be aimed at Muslim investors, and why investors and institutions concerned with compliance to Shari-ah principles would look to Bermuda. But the strength of the industry and Bermuda’s contribution to it speak for themselves.

Simply put, Islamic finance is a form of partnership in which the investor and the institution share the benefits of the investment if it is successful and the downside of the investment if it is unsuccessful. All investment also complies with the ethical principles of Shariah law.

The global Islamic finance industry currently stands at $1tn and accord-ing to industry leaders; the market is expected to double within the next 5 years. Much attention has, unsur-prisingly, focused on areas with large Muslim populations, in particular Ma-laysia and the Gulf. But other juris-dictions, such as Bermuda, have also been playing an important role in the industry.

This is not simply an aspiration; it is something we are already doing. For example, the $500m Islamic bond, or sukuk, issued by GE Capital in 2009 was structured using a Bermuda lim-ited liability exempted company. This transaction has served as proof of the benefits that businesses outside of the Muslim world can gain from Shariah-compliant investments. And it was a transaction in which Bermuda’s openness to Islamic finance played a key role.

Fuelling economic growthFor fund managers, the benefits of Islamic finance can be felt in two ways. Firstly, Shariah-compliant fi-nancial products provide managers with a great way of making their cli-ents’ money work harder in important growth markets. Governments and businesses in the Middle East and in South East Asia will require large in-vestment to help to fuel economic growth. As these economies grow, so will the opportunities to invest in Shariah-compliant products. At a time when returns are hard to find, the op-portunity for exposure to these fast-growing economies is one that man-agers can ill afford to ignore.

Secondly, Islamic funds provide a way for firms to tap into a grow-ing pool of individuals and institu-tions that are interested in ethical and Shariah-compliant investments. While

of course much of that investment is coming from Muslim countries, the potential of Islamic finance extends beyond just Muslim investors. Just as an example of the appeal of the in-dustry, approximately half of Islamic mortgages in Malaysia are held by non-Muslims.

It should come as no surprise that in a world which is still adjusting to the effects of the sub-prime crisis, the Madoff scandal and seemingly sound financial institutions being bailed out by governments, more and more people are interested in a form of in-vestment which is asset-based and places ethical principles at its core. In-deed, the global Islamic funds indus-try is already sizeable, having grown at a rate of 15% per annum over the last decade.

If the arguments for investing in Is-lamic finance are strong, the case for doing so from Bermuda are no less so. Some reasons will be familiar to top international fund managers. The qualities that make Bermuda a lead-ing destination for conventional funds also help to make us a top destination for Islamic funds.

Firstly, Bermuda has regulation that meets with the highest international standards. So the best in the industry can compete on a level playing field, without having to worry about loop-holes being exploited by unscrupu-lous players. That is the reason that

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Bermuda is on the OECD’s White List, why we are the Vice Chair on the Steering Committee of the OECD’s new Global Forum and why we have never been sanctioned for failing to match up to the high standards we hold ourselves to. But while we are

tough with wrong-doers, our consult-ative approach to regulation means that firms can be sure that they will not have unworkable new rules forced on them overnight.

Secondly, Bermuda is an economi-cal destination. We know that to at-tract fund managers from traditional financial centres like London and New York, we have to offer them

something in return. That is why we have no income, capital gains, sales, wealth or value added tax. So more of the money that they earn stays with them and with their clients. At a time when returns are tough, and client expectations tougher, it is an offer

that makes sense.Finally, we provide the infrastruc-

ture that a modern fund manager needs for success. That is true of the technology that allows them to keep on top of investments from Rio to Riyadh. But it is also true of the law-yers, accountants and auditors that are vital to a thriving financial sector.

In addition to our strengths as a

general financial centre, we have also adapted our industry in order to pro-vide an environment in which Islamic finance can thrive. For example, the asset-based nature of sukuk can cre-ate extra costs in those jurisdictions that impose a stamp duty. Bermuda has no stamp duty, and our tax neu-trality means that we are able to adapt more quickly to innovation in the industry. So Islamic finance firms can pursue the innovation that the in-dustry needs to develop without the need to wait for changes in tax policy.

Furthermore, we have signed a Dou-ble Tax Agreement with Bahrain, one of the world’s leading Islamic finance centres. This not only gives firms an opportunity to access a fast-growing market that is already worth a trillion dollars, it also shows the importance of the partnership that we are devel-oping with key countries in the region.

So whether it is the support that firms need in order to invest profitably in Shariah-compliant products, or cre-ating the right environment for setting up the funds and instruments that can appeal to investors and corporate in the growing international Islamic finance market, Bermuda is an excel-lent position.

Cheryl PaCkwood

CEO Business Bermuda

“In addition to our strengths as a general financial centre, we have also adapted our industry in order to provide an environment in which Islamic finance can thrive”

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The BSX is a full member of the World Federation of Exchanges.Bermuda is a British Overseas Dependent Territory and is

part of the UK for the purpose of OECD membership.

UniqUely Positioned

BERMUDA

The BSX is internationally recognised as an attractive venue for the listing of:

Hedge Funds Investment Fund Structures Equities Fixed Income Structures Derivative Warrants Insurance Linked Securities

Established in 1971, the Bermuda Stock Exchange is the most widely recognised, offshore securities market platform.

22 Church StreetHamilton, HM 11 Bermuda Tel: 1.441.292.7212Fax: 1.441.296.1875

web: www.bsx.com e-mail: [email protected]

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Reaping the benefitsPeter Hughes of Apex Fund Services explains how the firm’s Bermuda office enhances its global network as well as championing local needs

FeatuRe reportBErmudaAdministrAt ion

With a tighter regulatory sys-tem and an increasing de-mand for a wider range of services, the administrative burden of servicing funds

looks set to intensify in 2011. Peter Hughes, Group Managing Director of Apex Fund Services, explains the ben-efits of locating in Bermuda, one of the world’s premier offshore financial cen-tres, and how they plan to rise to the challenges ahead.

MENA Fund Manager (MFM): What at-tracted Apex to set up an office in Ber-muda and how important is this office in terms of your global network?Peter Hughes (PH): Bermuda is a well known centre of excellence for fund administration and is associated with other quality jurisdictions. I was based there previously when I was a fund of funds manager and being one of the main centres for outsourcing our fund administration historically, it was a logi-cal place to set up. It has an established reputation that is founded on the qual-ity rather than quantity of the financial transactions that originate there.

The island has long been regarded as an exceptionally well-regulated juris-diction largely as a consequence of the oversight of the Bermuda Monetary Au-thority, which screens those individuals who wish to do business from or within the island. As a leading offshore centre, Bermuda has all the essential compo-nents necessary for a robust interna-tional business community. Some of the many advantages of doing business in Bermuda include its progressive regu-

lation regime, lower tax jurisdiction, its location, the wide availability of experi-enced service providers and the quality of life that is enjoyed on the island.

MFM: What contributed to Apex’s of-fice in Bermuda winning the best fund administrator award at 2011’s Service Providers’ Awards?PH: Our business has matured; we have 25 members of staff and are one of the larger administrators actually operat-ing in Bermuda now. Having a model where there is one staff member deal-ing with each part of the service spe-cifically, builds a close relationship with the client. We provide a whole range of

services including, but not limited to, reconciliations, net asset values (NAVs) and shareholders services, which, com-bined with the technology we have de-veloped, puts us ahead of our competi-tors. Risk management is going to be an area of increasing focus for invest-ment managers. In response and to help managers, Apex launched the world’s first, real-time Middle Office Operational Risk service (MOOR). This breakthrough gives fund managers on the spot ac-

cess to a unique portfolio management system.

We have the capability to service any size fund, fund structure or fund strat-egy in any fund domicile. Our range of services is particularly important as fund managers continue to demand higher levels of service from their administra-tors and with the regulatory system set to tighten, the Apex global network, which originated in Bermuda, is demon-strating its strength.MFM: What is the importance of fund administrators locating alongside their clients in Bermuda and what benefit do staff with local knowledge bring to the service?

PH: Our focus, not only in Bermuda but throughout the Apex group, is on being responsive. Our model is the opposite to many of our competitors who use big outsourcing centres. In Bermuda espe-cially, a lot of work is done in Canada but a lot also goes through India or even South Africa where the delay of waiting to get answers from outsourcing cen-tres to clients can be a couple of days, whereas we aim to deliver the informa-tion within half an hour.

peter hughes

Group managing director, Apex Fund Services

“Our focus, not only in Bermuda but throughout

the Apex group, is on being responsive”

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There are constant debates about how to deliver the service in different jurisdictions and, therefore, by being lo-cated in them you understand what the issues are. apex’s philosophy is based on providing personalised fund admin-istration services by being based in the same location as our clients. This ena-bles us to build working relationships with our clients so we can properly understand their businesses, their local regulatory frameworks and help them grow their businesses.

MFM: What new challenges will regula-tory changes bring to fund administra-tors in 2011?PH: fund administrators will need to provide a wider spectrum of services, which includes not only a regular naV but also middle office, risk and order management systems. To meet this increased burden on administrators, we are advancing our technology to provide an independent risk and com-pliance tool. administrators are being

called on to do more in terms of pro-tecting the investors in their funds and also protecting the reputation of regu-lators. By being located in the same time zone as our clients we can deliver a more responsive service, which is in the right jurisdiction and time frame. I believe it is going to be harder for some of our competitors to really meet these needs when they are trying to do it from big outsourcing centres in different time zones.

MFM: How does Apex propose to take on the increasing number of funds reg-istered in Bermuda?PH: with over $16bn of assets under administration and 200 employees, apex services its clients through 21 of-fices across the globe and its culture of personal and responsive client servicing, which originated in Bermuda, is still the basis of the company. The main advan-tage of our model is that it is technologi-cally advanced; because each member of can service five or six funds a month,

we are able to grow our office by anoth-er 10 staff, which would be an additional 50 or 60 funds that we have capacity for. Therefore, we can easily double the size of our business in Bermuda.

MFM: What makes Bermuda a suitable location for both clients and companies within the Mena region?PH: Bermuda has a great range of prod-ucts that are cost effective to set up and meet the needs of investors who are looking to invest into middle east-ern asset funds. There is always a focus on keeping costs as low as possible so that managers can really perform to investors and Bermuda has an excel-lent range of products on offer. another benefit is the close proximity between apex’s Bermuda office and the four in the middle east, which means we can deliver Bermuda products efficiently; in the right time zone with people that speak arabic.

MFM: What developments do you have planned for the year ahead and will you be launching into any new territories?PH: our objective for 2011 is to continue to deliver our model, locating close to where we identify pockets of funds of our managers that are not serviced lo-cally, and we are looking to expand into another six or seven different countries. we have an office in cork and are open-ing an office in Dublin. we also want to open a regulated office in London and have plans to expand into Zurich, Ge-neva and moscow. we believe there is a growth market in Sydney and melbourne as australia does not seem to have been too badly affected by the global finan-cial crisis, and we are also considering a couple of locations in South america.

we may not be able to achieve it all this year but we want to just focus on differentiating what we do from our competitors by locating exactly where the fund managers are so we can de-liver our work quickly and understand the nuances of doing local business in different markets.

“we are advancing our technology to provide an independent risk and compliance tool”

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Your domicile of choice for Shariah-compliant fundsBelaid Jheengoor, of PricewaterhouseCoopers, explains how Bermuda is encouraging the development of Islamic finance

BErmuda

the Bermuda government is actively engaged in promoting the develop-ment of Islamic finance in Bermuda and exploring ways to support its growth. These initiatives build on

the existing relationship between Ber-muda and the Gulf Co-operation Council (GCC). Investors from the GCC already invest heavily in Bermuda-based invest-ment funds and have significant interests in the local hospitality industry. Financing vehicles originating from the GCC use Bermuda-exempt companies and trusts in sukuk, investment holding and wealth management structures.

Bermuda provides a favourable envi-ronment for establishing Shariah-compli-ant funds given its position as one of the world’s leading jurisdictions for the asset management industry and the govern-ment’s receptive attitude to new entrants to the market. Bermuda offers an excel-lent and stable platform from which fund promoters and investment managers seeking to expand their Shariah-compli-ant product offerings globally can con-fidently launch, manage and administer such products.

Bermuda is not only attractive for the domiciliation and administration of funds, it also benefits from the presence of the world’s top investment management firms, as well as large independent hedge fund and private equity fund managers. Asset managers locate their operations in Bermuda because it offers one of the world’s highest standards of living and

low taxes together in a prestigious inter-national financial centre.

Bermuda is a perfect location for Shari-ah-compliant asset managers to expand globally, access the US market and devel-op a globally recognised Shariah-compli-ant asset management brand.

Bermuda’s value proposition for Shariah-compliant fundsBermuda has certain competitive ad-vantages that make structuring Shariah-compliant funds particularly attractive. These include:

• Its concentration of intellectual capi-tal arguably exceeds that of com-peting jurisdictions. Bermuda has a pool of talented people including administrators, lawyers and account-ants who are used to dealing with complex products. They also have a long history of working with emerg-ing markets and can provide a high level of customised service, which is a requisite of private equity funds.

• Bermuda’s situation geographically (with easy access to and from New York and London) serves as a hub for the asset management industry and it is, therefore, well placed to emerge as an offshore platform for Shariah-compliant funds originating and/or targeting the US market.

• Bermuda’s tax neutrality is a com-petitive advantage over its onshore competitors. As more innovative and complex Islamic financial products

are developed by the global market, Bermuda offers promoters the ad-vantages of effective tax structuring and speed to market.

• A double tax agreement signed with Bahrain provides structuring oppor-tunities for investors accessing the GCC region.

• Bermuda has a strong alternative fund industry, a highly regarded regulatory environment, good speed to market and high-quality in-frastructure.

• Shariah-compliant fund sponsors benefit from the presence of world-class asset management firms, fund administrators and other profession-als. Funds can be listed on the Ber-muda Stock Exchange.

• Bermuda offers opportunities for asset managers to provide Shari-ah-compliant asset management services to Bermuda’s emerging re-takaful/retro-takaful (Islamic reinsur-ance) industry.

Structuring Shariah-compliant investment fundsShariah-compliant funds are similar in their set up to conventional funds and the Shariah element can be viewed very much as an overlay, comparable to a fund established with a ‘socially responsible’ investment ethos. The same principles and requirements under the Bermuda Investment Fund Act apply to Shariah-compliant funds. Generally there are no

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restrictions in the investment objectives under the Bermuda’s Companies Act and Investment Fund Act. The specific Shariah-compliant requirements and restrictions can easily be incorporated into a fund’s offering memorandum/pro-spectus.

There is growing demand from affluent Muslim investors living in Western coun-tries (US & Europe) for global Shariah-compliant investments. Moreover, there is a shift in investors’ preference away from traditional Shariah-compliant asset classes, such as equities and real estate, in favour of alternatives such as ETFs and hedge funds. There is also pressure on GCC/Middle East institutions such as sovereign wealth funds and government pension funds to include a Shariah-com-pliant mix within their portfolio alloca-tions.

Despite the current shortage of accept-able alternative investment products and limitations of certain hedge fund strate-gies, the future for the development of Shariah-compliant alternative investment funds looks promising. The recent ISDA/

IIFM Hedging Master agreement is a posi-tive move for Shariah-compliant hedging products that will help Shariah-compliant hedge funds develop.

Bermuda, as a centre of excellence for the alternative fund industry, can help de-velop innovative Shariah-compliant alter-native investment funds and, therefore, can contribute to the development of a globally recognised Shariah-compliant

asset management brand in this sector.

Private equity/venture capital, real estate and global infrastructure fundsThe choice of domicile for GIFs and PEFs is driven by investors’ need for tax-efficient and transparent structures, balanced with robust regulations and regulatory oversight. GIFs often take the form of traditional PEFs domiciled in an international financial centre, such as Bermuda.

There is a close relationship between Islamic tenets of investment and PEFs. Both are participatory in nature, lead to the sharing of risks and rewards, invest in the real economy, take a long-term view on investments with an exit plan, and align the interest of the stakeholders. Shariah-compliant PEFs focus on acquir-ing majority stakes in privately held Sha-riah-compliant companies and projects. One significant difference is profit and loss sharing and manager remuneration determination.

Two of the main Shariah principles

governing Shariah-compliant PEFs are mudarabah and musharakah.

A mudarabah contract is a partner-ship under which an investor provides capital to another person/body (such as the manager), who uses his expertise to devise a suitable investment strategy. Profits generated by that enterprise or activity are shared in accordance with the percentage specified in the contract,

while losses are borne solely by the capi-tal provider unless the losses are due to the entrepreneur’s misconduct, negli-gence or breach of contracted terms.

Musharakah is a profit and loss sharing contract that involves a partnership be-tween two parties both of whom provide capital towards the financing of new or established projects. Both parties share the profits on a pre-agreed ratio, allow-ing managerial skills to be remunerated, with losses being shared on the basis of equity participation. One or both parties can manage the project.

A Shariah-compliant PEF is typically structured as an exempted limited part-nership. Bermuda’s limited partnership rules accommodate both the mudarabah and musharakah structures. The Ber-muda Partnership Act does not attempt to regulate the affairs of a partnership to any great extent. The specific require-ments of either structure can easily be incorporated into the partnership agree-ment. Bermuda structures are also suit-able parallel vehicles to accommodate both Muslim and non-Muslim investors.

Structuring and listing global sukuk transactionsSukuk, Islamic fixed-income securities, has emerged strongly over the past 15 years as an important asset class. The GE Capital Sukuk, offered under Regulation S and structured using a Bermuda limited liability exempted company, represents a significant development for the global sukuk market because it was the first sukuk issued by a US corporation rank-ing in the top 10 Fortune 500 companies. Also, it was the first sukuk to be based on ownership interests in aircraft assets and rights under the aircraft assets’ leases.

The recent credit crisis did much to strengthen the case for alternative in-vestment approaches and ways of rais-ing capital in the global capital markets. Sukuk is one of the fastest emerging al-ternative instruments and is increasingly used by governments and corporations in the Middle East and south-east Asia to access global capital markets.

belaid jheengoor

PwC

“Bermuda, as a centre of excellence for the alternative fund industry, can help develop innovative Shariah-compliant alternative investment funds”


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The sukuk market is emerging as a new global asset class, bringing diversifica-tion and widening its geographic reach. A number of jurisdictions in Europe (UK and France) and Asia (Japan, Korea and Thailand), have developed or are devel-oping legislative and regulatory initiatives to enhance their ability to explore the su-kuk market for the first time. Such moves could also prompt other jurisdictions, such as the US and Canada, to pursue similar efforts.

The growth in the global sukuk mar-ket presents an opportunity to further strengthen the development of sukuk funds. Sukuk funds provide investors with diversification away from traditional eq-uity and real estate funds and at the same time produce fixed income returns.

Unique value proposition for structuring global sukuk transactionsAlready recognised as a centre of ex-cellence for the domicile, management, administration and listing of investment funds and structured finance vehicles, Bermuda is a natural choice as a juris-diction for sukuk issuers, and has cer-tain competitive advantages that make structuring sukuk particularly attractive. These include:

• There is no stamp duty on any instru-ment affecting or relating to interna-tional businesses in Bermuda. This is a key consideration for global sukuk issuances.

• There is no exchange control for non-resident undertakings and no restric-tion on repatriation of funds.

• Bermuda has modern corporate and trust legislation, both of which are attractive for sukuk structures. In Bermuda, a special purpose vehicle (SPV) typically takes the form of an exempted company under the Com-panies Act 1981.

• Bermuda companies may adopt a secondary name in non-Roman script such as Arabic with the approval of the Registrar of Companies.

• Bermuda’s private trust company

legislation is attractive for Islamic finance structures. A private trust company is a company with trustee powers that is not required to be li-censed under Bermuda trust legisla-tion, provided that by the terms of its memorandum of association it is em-powered to act as trustee of only a limited number of identifiable trusts.

• A double tax agreement signed with Bahrain provides structuring opportunities for accessing the GCC region.

Structuring global sukuk transactionsThe GE Capital Sukuk is proof that Ber-muda’s laws are tried and tested by rating agencies, regulators and investors global-ly for sukuk structures. Bermuda vehicles are suitable for financing structures for the acquisition of global portfolios of as-sets, for example the GE Capital Sukuk, structured as an ijarah sukuk was issued to finance a global portfolio of aircraft leases.

Bermuda companies and trusts are at-tractive for various sukuk structures such as mudarabah (investment partnership), musharakah (profit and loss sharing), murabaha (cost plus), ijarah (leasing), istisna’a (construction contract), and wakala (agency contract).

Bermuda Stock Exchange: an attractive listing location for global sukuk transactionsThe Bermuda Stock Exchange (BSX), as the world’s leading fully electronic off-shore securities market, is an attractive listing location for cross-border sukuk transactions:

• It offers issuers the opportunity to be listed on an internationally rec-ognised stock exchange with the unique geographic position between two of the deepest capital markets in the world.

• It provides high regulatory standards, visibility for issuers and transparency for investors, which facilitates cross-border flow of capital and bridges

cross-border investment gaps.• It adopts a non-discriminatory,

religion-neutral regime for sukuk listing under its Specialised Debt list-ing rules.

• The fully electronic capabilities offer attractive opportunities for listing Regulation S sukuk offerings.

• Bermuda offers administrative and cost efficiencies in that issuers may structure and list sukuk in a single ju-risdiction.

The BSX is suitable for listing a diverse range of Islamic financial products, in-cluding investment funds and ETFs.

Cross-border investments and capital raising transactions Bermuda not only serves as the domicile of choice for structuring Shariah-compli-ant financial products such as funds and sukuk, but plays an even more impor-tant role in facilitating Shariah-compliant cross-border investments and capital-raising activities, particularly in relation to the US capital markets. An independent study carried out in May 2010 by Albright Stonebridge Group (US – Bermuda Eco-nomic Relations: Economic Impact Study – 2010) confirmed that Bermuda’s inter-national business environment provides competitive advantages for US business-es striving to compete globally.

Bermuda offers an excellent and very stable platform from which sukuk issuers can confidently structure and list cross-border sukuk transactions originating from and/or accessing US capital mar-kets. To the extent that sukuk issuances, or similar capital raising activities, seek to attract US investors, or if a US corpora-tion is involved, close attention must be paid to ensuring that the transaction falls within the scope of at least one exemp-tion from the registration requirements of the US Securities Act of 1933. The two main exemptions relevant for US sukuk transactions are provided under Rule 144A and Regulation S.

The GE Capital Sukuk was offered un-der Regulation S, and a number of recent sukuk issuances have been structured


BErmuda

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to meet the requirements for ‘resales’ to US investors under Rule 144A. This could signal the beginning of a trend to attract US investors and issuers to the emerging global sukuk market.

Moreover, Bermuda provides an attrac-tive platform for investors seeking global diversification to their Shariah-compliant investment portfolios and access to US investments. Bermuda investment struc-tures are attractive for global fund plat-forms targeting mainly US, as well as global, investors seeking investment op-portunities in the GCC/Middle East and south-east Asia regions.

There are several value propositions regarding cross-border investments and capital-raising activities, focusing on the US market, using Bermuda as a gateway:

1. USaccesstoglobalcapitalmarketsThe first value proposition is for US-based corporations seeking alternative ways of

raising capital globally (mainly from GCC and south-east Asia), for debt refinancing and/or more suitably to finance a global portfolio of assets, to structure and list a Bermuda-based sukuk. For US corpora-tions such as GE, a sukuk issue can di-versify their funding base and boost their profile in the increasingly important Mid-dle East and south-east Asia regions. Us-ing Bermuda corporate and trust vehicles, which have been trusted by investors and capital markets globally for many years, will facilitate such objectives.

2.GlobalaccesstoUScapitalmarketsThe second value proposition is for sukuk issuers from GCC and south-east Asia seeking to raise capital from the US, to

finance growing infrastructure projects and other ventures, to structure and list a Bermuda-based sukuk to benefit from Bermuda’s reputation as a jurisdiction of choice for structuring cross-border trans-actions.

3.AccesstoUSinvestments/Innovativealternative Shariah-compliant invest-mentfundsandsukukstructuresInvestors such as sovereign wealth funds, institutions and high-net worth individu-als (HNWIs) from GCC and south-east Asia regions who are seeking to diversify their global Islamic investment portfo-lios and access US investments can do so by investing in Shariah-compliant US securities such as sukuk, listed securities screened for Shariah-compliance and private equity. There are significant op-portunities for US promoters to service such investors and Bermuda structures which are accepted and trusted globally

can be used to develop innovative sukuk structures as well as alternative Shariah-compliant investment funds such as hedge funds, private equity funds, fund of funds, ETFs, commodities funds and sukuk funds.

There has been an influx of money into the US capital market, the biggest in the world, from Middle Eastern investment groups, particularly in the past decade. Gulf-based institutions have been making large investments in US real estate and private equity. Banks and lawyers in the US have had to come up with innovative structures that are suitable for Islamic in-vestments. These deal flows are less vis-ible, though large, because they are done privately.

4.GlobalfundplatformsRecent economic developments in the GCC/Middle East and south-east Asia regions present US, as well as global, investors who are seeking geographic and product diversification with lucra-tive opportunities to invest in sukuk issu-ances (either directly or via Sukuk funds) and other investment products (such as investment funds, private equity and infrastructure projects) targeting these regions. To facilitate such cross-border investment flows, it is vital to have tax-efficient global fund platforms in a repu-table jurisdiction, such as Bermuda, and benefit from its regulatory environment, high-quality infrastructure, and world-class fund administrators.

To summarise, the key benefits of hav-ing Bermuda-based global fund plat-forms targeting investment opportunities in the GCC/Middle East and south-east Asia regions are:

• They provide access to alternative asset classes in emerging markets.

• They are attractive to US/global ethi-cal investors seeking access to social-ly responsible investments in emerg-ing markets.

• They are attractive to investors seek-ing investment diversification.

The US offers significant opportunities for a second phase expansion of the glo-bal Islamic finance market, in particular the global sukuk market. The increasing numbers of sukuk offered under 144A and Regulation S is strong evidence that US regulators understand this Islamic fi-nancial product and apply a non-discrim-inatory regulatory regime. Additionally, it demonstrates the growing willingness among US investors to invest in such products and presents opportunities for US corporations to explore alterna-tive ways of raising capital in the global markets.

Bermuda, as a premium international financial centre, is well positioned to be-come the most important Islamic finance hub in the western hemisphere for such Shariah-compliant cross-border invest-ments and capital-raising activities.

“Bermuda offers an excellent platform from which sukuk issuers can structure cross-border sukuk transactions”


“ S o p h i s t i c a t e d , d e p e n d a b le a n d ex t re m e ly e f f i c i e n t p ra c t i ce ”

C h a m b e rs G lo b a l U A E ( o f fs h o re )

Investment Funds•Islamic Finance•Private Equity•Formation and Structuring of Joint Ventures•Formation and Structuring of Private •Trust CompaniesCapital Markets•

Corporate and Project Finance and •Security ArrangementsAircraft and Shipping Registration, Finance •and LeasingIncorporation and Formation of Holding and •Investment EntitiesCorporate Restructuring and Insolvency•

Contact: Kerri Lefebvre: [email protected] Fawaz Elmalki: [email protected]

T: +9714 428 2900

BERMUDA BRIT ISH V IRGIN ISLANDS CAYMAN ISLANDS D U BA I HONG KONG

LONDON MAURIT IUS MOSCOW SÃO PAULO S I N G A P O R E

conyersdi l l .com

From offices in the Dubai International Financial Centre, Conyers Dill & Pearman is well positioned to provide timely support and advice to Middle Eastern and international clients including banks, finance houses and law firms on Cayman Islands, British Virgin Islands, Bermuda and Mauritius law matters. Conyers’ Dubai team works closely with leading local and international firms to provide legal counsel on jurisdictional aspects of corporate and commercial transactions, with particular emphasis on:

Mena Fund Manager.indd 1 2/3/2011 10:02:32 AM


A local service with global reachAltree Financial talks to MENA FM about the mutually beneficial links between Bermuda and the Mena region

FeAture reportBErmuda

MENA FM (MFM): Why did Altree Fi-nancial chose to establish its global headquarters in Bermuda, and what benefits does your global view offer investors and money managers oper-ating on the island?Stuart Lacey (SL): Bermuda was an obvious choice for our global head-quarters for multiple reasons: the strength of the regulator, the business-friendly approach of the Ministry of Finance, the strong legal system, the offshore trust law, the extensive tax benefits and the high-quality technol-ogy and communications infrastruc-tures all came into play. Its physical lo-cation; being one hour ahead of New York and four hours behind London, coupled with the fact that it happens to be a sub-tropical paradise, make it a great location from which to do business.

Bermuda is the executive head of our financial group, but we also have offices in New York, London, Malta, Johannesburg and Hong Kong. This allows us to provide a localised serv-ice to our clients, which is a deliver-able that we take very seriously. We will also be opening an office in Dubai within the next year in response to the high level of interest that we are seeing from clients in the region. We are committed to delivering the best of both worlds: global presence and reach; combined with local and per-sonable service.

MFM: What makes Bermuda a suita-ble location for both clients and com-panies in the Mena region?SL: Bermuda has a strong legal and

regulatory structure that appreciates and understands the specific require-ments related to Shariah-compliant funds: including mudarabah, mushar-akah and ijara for example, and takaful and retakaful business in the insurance and reinsurance sectors. The Bermuda government recently signed a double taxation agreement with Bahrain, and we are seeing a growing increase in sukuk issuance in Bermuda. The pro-fessional service providers and large audit companies that the island has attracted are capable advisors in these areas, and there is also a solid network of supporting accounting and legal firms with relevant expertise.

MFM: What makes Altree Financial’s offering to both Mena clients and structures unique in this space?SL: Our key differentiating factor is our independence. We have a com-petitive advantage in our core market: a dedicated access to the investment markets of the entire African conti-nent. We already have a number of Mena clients including banking inter-ests in Egypt, Saudi Arabia, Tunisia, and Morocco, as well as fund and cus-tody interests in several Gulf and GCC nations. Altree Custody is the only independent market participant to of-fer custody, settlement and clearing in more than 24 African countries. It does so through a single relationship, accounting and consolidated securi-ties management system. Our pro-prietary network utilises and realises significant cost savings to our clients, and simplifies many of the adminis-trative burdens of managing funds

in emerging and frontier markets. In-dependence permits us to select the best provider in each market and thus diversify counterparty risk – some-thing that we believe is necessary for sophisticated investors; especially those who are looking to harness the significant profitability and growth we believe that Africa will experience in the coming decades.

MFM: What developments do you have planned for the year ahead?SL: In terms of work on the ground in Bermuda, we are dedicated to as-sisting the Bermuda government and Business Bermuda in expanding and developing upon its already strong reputation as a leading international financial jurisdiction.

Altree is also focusing its atten-tions on the Mena region, as this is a very important market for us. I will be speaking at a conference hosted by Business Bermuda in Bahrain on the 16 February, and will be in the region for several weeks during that time meet-ing clients and building relationships. We believe it is important to us to be physically present in that market, to be seen and to be known. We already have an established presence in the sub-Saharan and north Africa mar-kets, and thus expansion into the GCC region is a natural progression for us. We also have a lot of complementary businesses that we work with within the Mena region, with multiple offices providing both fund administration and asset management. We look for-ward to doing more business with the Mena region in the years ahead.

stuart lacey

Managing director, Altree Custody Services Ltd

017_018_MenaBermuda_Alltree.indd 17 10/02/2011 17:28

Feature Bermuda

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the offshore advantageChris Harkness, finance director of Altree Services Ltd, discusses the search for jurisdictional prudence

Global markets appear to be healing and evolving. Invest-ment fund promoters (direc-tors and managers) are paying close attention to the winds of

change. The financial lessons from the past three years and numerous other contributing factors have forced inves-tors to scrutinise the offering and le-gal documents relating to their invest-ments. Specifically, fiduciaries have been tasked with the responsibility of overseeing and interpreting the rapidly changing financial landscape. This has recently brought into acute focus the domicile from which a manager choos-es to operate.

Historically, when considering where to domicile a commingled investment vehicle, the typical promoter was often focused on the path of least resistance. This had more to do with speed of exe-cution and associated set-up cost than with the integrity and credibility of the jurisdiction in question. Investment managers relied upon offshore legal counsel for advice, with many simply deferring to their selection.

In the post-2008 environment, a new focus – fiduciary responsibility – has come to the fore. In lieu of the numerous contractual disputes involv-ing investment managers and their respective fund vehicles, jurisdictional prudence has emerged as a critical ele-ment for consideration when attempt-ing to gauge the beneficial elements of offshore structuring.

Reflective of these renewed levels of due diligence, eyes have turned to issues surrounding the status and

overall acceptability of the jurisdic-tion of choice to the ultimate underly-ing investors. as such, ancillary issues such as offering restrictions, regula-tory position and tax/exchange con-trols are being measured against the confidence, familiarity and preference of underlying investors when dealing with the domicile in question.

at altree Services Ltd we believe that investor preference will continue to strongly influence the promoter’s choice of fund domicile. as new regu-latory initiatives (such as anti-money laundering, Tax Information exchange agreements [TIeas] and transparency) are integrated into the legal framework of leading offshore financial centres, investor preferences are changing and the concept of jurisdictional prudence is being challenged unlike ever before.

altree has headquartered its op-erations in Hamilton, Bermuda, and as such, is able to leverage Bermuda’s credible status for the purpose of de-livering unparalleled jurisdictional pru-dence to its clients. as the oldest and most populous British overseas Terri-tory, Bermuda benefits from the age of its judicial system and experience of its regulatory authorities. Bermudian monetary authorities are widely rec-ognised as having both developed and implemented a risk-based framework and capital model designed to ensure the highest level of observance to best practices.

as a result, Bermuda has emerged as the world’s second largest captive insurance domicile and third largest re-insurance centre, behind only London

and new York. Similarly, the longstand-ing credibility of the Bermuda mone-tary authority (Bma) has resulted in a significant and active trust and invest-ment fund and fund services sector.

Bermuda reinforced this reputation by successfully implementing the inter-nationally agreed-upon tax standard as set forth by the oecD and gained uni-versal recognition for having been the first offshore financial centre to ascend to oecD white List status. By the date of writing, Bermuda had concluded its 22nd TIea, and had multiple double taxation agreements in place.

while other offshore jurisdictions are running to keep up (and in so do-ing implementing significant licensing and annual regulatory fees) Bermuda has retained a pricing model that puts it near the top of the list in terms of val-ue. additionally, Bermuda’s ministry of finance has dedicated itself to stream-lining the incorporation processes for offshore funds, partnerships and other collective investments – making Ber-muda one of the quickest to market in terms of implementation timelines.

The ministry has further reinforced this process by making legislative up-dates to the legal framework, ensuring access to the latest corporate, trust and estate planning vehicles. This per-mits professional investors to locate not just their investments, but also the structures that support them, in one complementary and price-competitive jurisdiction. This truly is paving the way for a new wave of incorporations and business to make Bermuda their juris-diction of choice.

chris harkness

finance director, altree Services Ltd

017_018_MenaBermuda_Alltree.indd 18 10/02/2011 17:28

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all shapes and sizesS Randy Morris, of BCB Fund Services Limited, explains how a hands-on, fully comprehensive administrative service can help your investment fund – whatever its size

BErmudaAdministrAt ion

Prevailing sentiment is that the worst may be over for the offshore fund industry; how-ever, the reality is that while this may indeed be the case, a

large amount of capital once allocated to investment funds is still sitting in cash, and new fund incorporations are down from previous highs.

While Bermuda has certainly felt the ramifications of the extraordinary events in the global financial markets over the past few years, it continues to be regarded as a premier offshore financial and servicing centre and the preferred jurisdiction for many fund managers.

This is attributable to a number of factors, the most significant of which are its excellent professional repu-tation; sophisticated infrastructure; ability to handle sophisticated client

needs; depth of service providers’ ex-perience; and the widely respected regulatory framework and risk-based flexibility that ensures greater trans-parency and oversight.

In addition, over the past few years, Bermuda has eliminated earlier re-strictions and inefficiencies on doing business.

All fund administrators in Bermu-da are regulated by the Investment Funds Act 2006; licensed by the Ber-muda Monetary Authority and sub-ject to professional codes of conduct. Also, Bermuda’s favourable tax envi-ronment is another advantage that contributes to its position as the juris-

diction of choice. Bermuda-exempted companies are granted an undertak-ing by the minister of finance, exempt-ing them from all forms of taxation, whether on income or capital, profit

or dividends. In addition, there are no exchange control restrictions, nor is stamp duty payable on instruments executed by or on behalf of exempted entities.

Fresh startRegardless of present health of the offshore fund industry, the old adage remains true in that out of crisis comes new opportunities. This is highlighted by the fact that some fund managers are now increasing their fund invest-ments, utilising an increasingly steady inflow of new investor subscriptions; while other fund managers, recognis-ing the change in the global financial markets, are now incorporating new funds with different investment strat-egies that are better positioned to at-tract wary investors.

It is also very apparent that fund managers are looking for service providers who can best satisfy their requirements efficiently and cost ef-fectively against this backdrop of changing times. Bermuda’s fund ad-ministrators are well positioned to meet this challenge, and take full ad-vantage of any and all opportunities as they arise. But it is a fact that the fluctuations in global financial markets have forced some changes among the ranks of the 43 licensed fund adminis-trators in Bermuda.

While all Bermuda fund administra-tors can provide some combination of fund services, including fund ac-counting, registrar and transfer agent

“What happens to the smaller funds or the fund managers planning for new fund launches who require a more hands-on approach and a complete servicing solution?”

020_021_MenaBermuda_BCB.indd 20 09/02/2011 17:24


and corporate services, many of the larger Bermuda fund administration companies are now outsourcing much of these activities to offices in other jurisdictions in an effort to keep op-erational costs to a minimum.

The larger administrators are also placing size restrictions on the funds they administer and are choosing not to gamble on new fund managers or new fund launches, instead preferring to concentrate on larger and already established funds that can support larger fees.

But what happens to the smaller funds or the fund managers planning for new fund launches who require a more hands-on approach and a com-plete servicing solution that also in-cludes banking and treasury services in conjunction with fund administra-tion? What happens to those fund managers who need to know how to structure their new funds, or require a fund administrator to have much more involvement with their fund in-vestors?

Traditionally this type of complete servicing solution was offered by the local Bermuda banking institutions that also had the in-house fund ad-ministration servicing facilities. How-ever, because of recent developments there remains only one Bermuda banking institution that can still pro-vide a complete servicing solution to fund managers.

In this regard Bermuda Commercial Bank Limited, a Bermuda-registered bank focusing solely on commercial, corporate, institutional and high-net worth clients and offering an array of tailored banking and treasury services and a full range of custody, fund ad-ministration and corporate services, now stands apart from the rest of the field.

Bermuda Commercial Bank Limited offers fund administration and corpo-rate services through its fully licensed and wholly owned administration services company, BCB Fund Services

Limited. All servicing is still performed ‘in-house’ in its Bermuda offices with no outsourcing to other jurisdictions.

Mutual growthBCB Fund Services Limited readily admits that it would be much more lu-crative to only deal with billion-dollar funds, but it has learned that taking a chance and servicing a wide range of fund managers and funds, that include the smaller fund managers and start-ups, can reap its own rewards with an opportunity to mutually grow with a successful fund manager.

The result of BCB Fund Services Limited deciding to target its ap-proach to a niche group has been profitable, delivering satisfied fund managers. BCB Fund Services Lim-ited prides itself on its ability to tailor its services for any size fund; and by being a smaller operation compared to the recognised ‘big players’, BCB Fund Services Limited keeps itself manageable and flexible enough so it does not have to pigeon hole any of its clients with predetermined servic-ing parameters and fees.

The ethos of Bermuda Commercial

Bank Limited and BCB Fund Services Limited has not changed since they were set up, as what they do now has worked in the past. The benefits to fund managers are immediate and ap-preciable in that they have one serv-ice provider who can offer them the solution to all of their administration and banking requirements at a much cheaper cost than having several dif-ferent service providers. In addition, the fund manager does not have to pay for some big player brand that can often cost a lot more for a similar service.

In any case, as with all other profes-sional services providers, BCB Fund Services Limited recognises the im-portance of promoting and uphold-ing Bermuda’s status as a premier offshore financial and servicing cen-tre. Ultimately Bermuda’s continuing success will be assured as long as all those involved continue to provide professional, high quality, efficient and cost effective solutions utilising the latest technologies available, thereby ensuring the delivery of excellent fund administration services for which Ber-muda is so well known.

S RANDY MORRIS

General manager, BCB Fund Services Limited

020_021_MenaBermuda_BCB.indd 21 09/02/2011 17:25


Feature report

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rising to the challengeFawaz Elmalki, of Conyers Dill & Pearman, explains how offshore domiciles are meeting investors’ new demands

BErmudaLegaL

Leading offshore hedge fund domi-ciles have come under scrutiny recently. In the post-Madoff and post-credit crisis environment, there has been a significant trend

for fund promoters to establish their new hedge funds in more regulated and supervised jurisdictions.

Managers and promoters are seeking jurisdictions that offer a sensible regula-tory framework with ease of establish-ment while respecting investor demand for greater transparency. They are no longer automatically turning to the domicile of their last fund.

Moreover, although very large hedge fund managers are adding Undertakings for Collective Investment in Transferable Securities (Ucits) domiciled in jurisdic-tions such as Luxembourg and Ireland to their existing offshore fund domicile offering, the reality is that for the vast majority of hedge fund managers, Ucits will continue to be too expensive and too restrictive.

As one of the world’s leading jurisdic-tions for hedge fund domiciliation and with a reputation for being one of the most regulated offshore jurisdictions, Bermuda ticks all of the boxes for inves-tors, asset managers and fund promot-ers when choosing a fund domicile in this new paradigm.

In particular, Mena fund managers are increasingly looking to domicile their funds in Bermuda, in light of requests from investors to look to an alternative to the Cayman Islands, which traditionally has been the offshore hedge fund domi-cile of choice. From the Mena sponsor’s and manager’s perspective, establishing

a fund in Bermuda offers undeniable benefits including: a robust regulatory framework; ease and speed of establish-ment; service providers with a wealth of knowledge and experience; and no with-holding, capital gains, transfer, wealth or income taxes for non-resident entities. Moreover, Bermuda is represented in the Middle East by leading Bermuda law firms and service providers including fund administrators.

Bermuda’s strength and its growing popularity with Mena fund managers may be attributed to a number of fac-tors.

Effective legal frameworkBermuda is an internally self-governing British Territory and offers all the secu-rity and stability traditionally associated with the British flag. It enjoys an inde-pendent legal and judicial system based on English common law, with a right of final appeal to the Privy Council of Eng-land’s House of Lords.

Much of Bermuda’s success in attract-ing funds is the fact that the Bermuda Investment Funds Act does not impose restrictions on the investment policies or strategies a hedge fund may adopt, but instead requires active, ongoing and thorough disclosure to investors. This includes financial reporting and provid-ing an updated fund offering document when material changes occur.

Further, the service providers (includ-ing the manager) of authorised funds must notify the Bermuda Monetary Au-thority (BMA) and the investors if they become aware that the assets of the fund have not been invested materially

in accordance with the fund’s offering document or that the general manage-ment of the fund is not materially in ac-cordance with the provisions of its con-stitutive documents of the fund. Such disclosure increases investor confidence as to the transparency of the fund. In this way, fund managers have considerable discretion and flexibility as to how the fund’s affairs may be conducted, while investors are free to make appropriate and informed decisions based on their own assessment of risk and reward.

Moreover, Bermuda’s investment fund fee structure is competitive, which ulti-mately benefits both the manager and the investor in regard to launch and on-going expenses of the fund. Bermuda maintains a strong advantage because of this sensible and workable approach to fund regulation coupled with its so-phisticated legal system rooted in Eng-lish common law.

Internationally recognised funds and anti-money laundering regulationsThe BMA is responsible for regulating in-vestment funds, including hedge funds. The BMA is a full member of Interna-tional Organization of Securities Com-mission (IOSCO). Bermuda is continu-ally seeking to ensure that its laws and regulations are in line with international good practice.

The BMA requires that people who wish to establish funds in Bermuda are people of sound business integrity and good financial standing, in addition to having solid industry credentials. The BMA must be satisfied that all service

022_023_MenaBermuda_ConyersDill.indd 22 10/02/2011 17:29


providers to the fund are ‘fit and proper’. By maintaining such an approach, Ber-muda has become the jurisdiction of choice for discerning fund managers.

In addition, the BMA recognises the importance of the fund administrator’s role in providing greater transparency regarding a fund’s asset valuations. For-eign fund administrators must be rec-ognised by the BMA while fund admin-istrators in Bermuda are regulated and licensed by the BMA and are subject to the BMA’s Code of Conduct for Fund Administrators. This supervisory over-sight leads to an enhanced reputation in the industry as fund managers and in-vestors are comforted by the BMA’s role in protecting the investors’ interests.

Further, Bermuda is on the Organi-sation for Economic Cooperation and Development’s (OECD) ‘White List’ and has signed tax information exchange agreements with all G7 countries, as well as 12 others, including India and China. Bermuda also recently signed a double taxation agreement with Bahrain and it will host the 2011 OECD Global Forum on Transparency and Exchange of Informa-tion for Tax Purposes.

Centre of excellenceOne of the principal attractions of Ber-muda is its established reputation. Spe-cifically, Bermuda has long been an established financial centre, having sanc-tioned its first ‘exempted company’ in the 1930s, and now boasts a client base that includes a majority of Fortune 500 companies. Bermuda is an open, free-market, tax-neutral economy that caters to a global client base, serviced by highly qualified, sophisticated professionals. It is a centre of excellence for hedge fund formation with a large infrastructure of professional legal, accounting, audit, ad-ministration and fiduciary expertise.

Bermuda is well known for its close working relationship between govern-ment and private sector. This has created a business environment that is efficient and free of time-consuming bureauc-racy for the investment and hedge fund

industry. With its wealth of hedge fund expertise and continuous governmental consultation with industry experts with respect to enhancing its fund legislation, Bermuda continues to be a jurisdiction of choice for investors who place in-creased emphasis on greater levels of transparency, third-party service provid-ers and rigorous due diligence on fund documents and custody and administra-tion arrangements.

Bermuda is also well known as the world’s second largest (after London) domicile for insurance and reinsurance companies and is a centre of excellence for offshore aircraft and shipping regis-tration and finance. Many of the world’s largest insurance and reinsurance com-panies, hedge fund administrators and managers also have a physical presence in Bermuda.

Proven modelBermuda is a major centre in the interna-tional offshore investment fund industry with more than $200bn of fund assets (excluding closed-ended funds such as

private equity funds) domiciled there. There are more than 2,000 investment funds (excluding closed-ended funds) registered in and operating from Bermu-da. Hedge funds make up a significant proportion of such investment funds. There are also a significant number of unregulated investment funds, being primarily closed-end investment com-panies and limited partnerships (which are typically formed for private equity funds) in Bermuda.

A number of the larger funds are quoted on stock exchanges such as The London Stock Exchange and The Hong Kong Stock Exchange. In addition, many funds, particularly those seeking Eu-ropean investors, are listed on the Irish Stock Exchange or the Luxembourg Stock Exchange. The Bermuda model for investment funds is tried and tested and it works.

Way forwardToday, hedge fund managers and spon-sors driven by more risk-averse institu-tional investors are looking for more reg-ulated hedge fund domiciles. However, they still wish to domicile their funds in a legal and regulatory environment that supports wide ranging and unrestricted investment strategies as well as a quick and non-bureaucratic formation proc-ess. Bermuda is well positioned to ben-efit from this new paradigm. It remains committed to attracting quality funds by offering political and economic stability, a legal system based on common law, an abundance of professional service pro-viders and an efficient regulatory frame-work of the investment industry that provides transparency and disclosure.

Over the years, Bermuda has strived through legislation and codification of practices to meet the highest inter-national standards to ensure its name would be synonymous with ethics and quality. It is no coincidence that world-class US, European, Asian and Mena fund managers have been domiciling their investment funds in Bermuda for many years.

fawaz elmalki

Associate, Conyers Dill & Pearman

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Feature report

2 4

Onwards and upwardsGreg Wojciechowski of the Bermuda Stock Exchange explains how Bermuda is putting a challenging year behind it, and looking forward to expansion into the Mena region in the months ahead

BErmudastock exchange

the Bermudian domestic capital market and economy tend to lag broader macro economic trends felt in the wider global financial system. Therefore, it is no surprise

that 2010 was a challenging year for the Bermudian economy, with share prices and trading volumes declining as a result of investor cautiousness and negative fi-nancial results.

Even during the very darkest days of the economic dislocation, while eco-nomic uncertainty prevailed, credit mar-kets seized, and global liquidity dried to a trickle, stock exchanges never faltered and continued to operate – providing in-vestors and capital markets with the sole bastion of liquidity.

Exchanges across the world recog-nise their responsibility to their domes-tic capital markets and economies to provide liquidity and structure even at times of great stress. In doing so, they ensure that the fundamental principles of stock exchange operation to provide access, liquidity and information flow to the market is not interrupted thus pro-viding investors and market users with a level of comfort in the integrity of the market mechanism and the protection of assets.

Bermuda Stock Exchange (BSX) op-erations are predicated on these core principles, despite challenging times in the Bermudian domestic capital mar-ket, our international clients recognised the commitment of the BSX to provide world-class capital market support and, as result, the BSX ended the year with a record number of more than 800 listed

issuers with a combined market capitali-sation of more than $300bn.

The BSX delivers a fully electronic, modern stock exchange solution that supports central price discovery, cen-tral counterparty clearing and a secure depository book entry system. The BSX trades and settles daily and is used by BSX-regulated broker dealers and finan-cial institutions.

The BSX has built its reputation not only in terms of longevity, but also on in-ternationally recognised operational and regulatory standards. 2011 is a notable year in that the exchange will celebrate 40 years of operation and securities trading in Bermuda. Forty years of foun-dation and success has provided the platform upon which further product

support and services can be launched. I am particularly proud in that the BSX is a forward-thinking, innovative opera-tion, that constantly strives to add value and support to the domestic and inter-national capital markets.

Going into 2011, we see several areas of commercial opportunity. Of course we will continue to work hard in the fur-ther development of our domestic capi-tal market but in addition there are some exciting areas to explore. Two such areas for development planned for the year ahead include a commitment to do-ing business in the Mena region, and an expansion into insurance-linked securi-ties (ILS).

Bermuda-Mena connectionThere are symmetries between Bermuda and the Mena region, particularly Bah-rain, in that both provide financial servic-es support to high-net worth individuals and institutions, both act as a gateway to larger neighbouring countries and both

have individual areas of expertise that might be of mutual commercial benefit. The governments of Bermuda and the Kingdom of Bahrain have stated their desire to encourage greater economic ties between our countries.

“The BSX has built its reputation not only in terms

of longevity, but also on internationally recognised

operational and regulatory standards”

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In April 2010, Bermuda signed its first ever Double Taxation Agreement with the Kingdom of Bahrain, establishing the basis for greater economic co-operation with the Gulf Cooperation Council (GCC) region. In July 2010, a delegation of pri-vate and public sector representatives visited Bahrain to begin this initiative. In February 2011, Business Bermuda, the organisation charged with Bermuda’s international outreach efforts, will once again be on the ground in Bahrain hold-ing a series of meetings to maintain mo-mentum and accelerate co-operation.

Bermuda has a lot to offer clients in the Mena region. Its regulatory reputation, strategic location positioned between two of the deepest capital markets in the world, and its globally renowned in-surance and financial services industry provide the Mena region with a variety of commercial opportunities and exper-tise. Whether it is structuring a deal for financing, reinsurance coverage or finan-cial services support, Bermuda has the experience, expertise and willingness to develop new commercial relationships.

Innovative thinkingAt the BSX, we constantly analyse how our existing market structure can be lev-eraged for new business initiatives. The BSX recently announced its intention to provide listing support for Islamic finan-cial instruments such as sukuks. The BSX offers a competitive capital market list-ing opportunity for these instruments on the BSX very close to the North Ameri-can markets. Listing a sukuk on the BSX will provide the issuer with a ‘window on the West’.

A very interesting and timely initia-tive is our focus on supporting and ac-celerating the convergence of the capi-tal markets and insurance industry in Bermuda.

Bermuda should be seen as the natu-ral choice of jurisdiction for this exciting opportunity as it is one of very few juris-dictions that have the critical elements already in place to support the next level of convergence.

Bermuda is the third largest special-ity/reinsurance market in the world and is already home to more than 1,400 insurance entities with total assets of $442bn. Bermuda’s economy and politi-cal system is stable. In November 2010, Fitch Ratings reaffirmed Bermuda’s AA+ credit rating pointing to its strong institutions, its high per capita income and sustained current account surpluses and lower debt ratio. Bermuda is home to the BSX which is an internationally recognised stock exchange and a full member of the prestigious World Feder-ation of Exchanges. These elements are essential to support the development of this exciting market segment.

Bermuda is famed for solidity, reliability and expertise within its insur-ance industry, and has been moving towards developing Shariah-compliant products including takaful and retakaful in recent years.

The BSX will continue to expand the

listings of hedge funds and equity de-rivative warrants, and is build upon our ILS platform.

ILS, and catastrophe bonds in particu-lar, have attracted the attention of the BSX. This asset class is growing in inter-est due to the low correlation between the structures and the broader capital markets. Although a small market com-pared to other more mature asset class-es, this market segment is set to expand globally and could be of considerable interest to professional and institutional investors in the Mena region.

The BSX has niche expertise in this area. The exchange is located within the jurisdiction where the mind and manage-ment of this industry is located. Creating these products sees the convergence of these two markets in Bermuda – this is an exciting and natural opportunity.

One of our key aims for 2011, and one that we have already partly achieved, is to make Bermuda the one-stop-shop stock exchange, creating and listing the product here, as well as price discovery and exchange support.

We are committed to continuing our focus on providing commercially sensi-ble levels of regulation and transparency, as these have been the key foundations upon which we have built our success-ful operation. We believe that regulation should be appropriate, proportionate and reasonable. It must foster, not stifle, the impetus for innovation.

Our regulatory rigour and dedication to transparency are also two of the key attributes that we can offer to the Mena region, and we are keen to stress that we have a track record in providing a solid, reliable service.

Growth is very much the keyword for the year ahead. Aside from continuing to provide support for ILS and serve our listed companies and account holders, we are also looking to develop busi-ness in the Mena region, demonstrating in each enterprise that a small, mature, niche stock exchange like the BSX has an increasing relevance in an expanding global economic framework.

greg wojciechowski

President and CEO, Bermuda Stock Exchange

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WWW.MENAFM.COM2 6

Fund Service ProviderS

directory

Stuart Lacey, Managing Director, email: [email protected], address: Altree Custody Services Ltd. 85 Front Street, Hamilton, HM 12 Bermuda

Tel: +1 441 278 7610, Fax: +441 295 6735, email: [email protected], web: www.altreecustody.com Altree Custody Services is an independent global custodian; providing safekeeping and fiduciary services through a global network covering over 70 markets. It specialises in turn-key access to every securities market in Africa, diversifying counterparty risk, realizing significant cost savings and simplifying the adminis-trative burdens of managing investments funds in frontier and emerging markets.

5

S. Randy Morris, General Manager, BCB Fund Services Limited, Tel: +441 299 2867, Address: 19 Par-la-Ville Road, Hamilton, HM 11, Bermuda

Neil de ste Croix, General Manager, BCB Trust Services Limited, Tel: +441 299 2868, email: [email protected], web: www.bcb.bm

BCB is the only bank in Bermuda focused solely on commercial, corporate and high-net-worth clients. We offer an array of banking solutions, as well as a full range of custody, fund administration, investment and corporate services. BCB provides a personal approach to our clients’ needs. Our success lies in our ability to enhance our clients’ profitability, save them time and provide them with the premier service they demand.

Greg Wojciechowski, CEO, Tel: +1 441 292 7212, email: [email protected]

Established in 1971 the Bermuda Stock Exchange (BSX) is now the world’s leading fully electronic offshore securities market, with a current market capitalisation (excluding mutual funds) in excess of US$300bn. There are over 800 securities listed on the BSX of which over 350 are offshore funds and alternative investment structures.

Dubai: Craig Roberts, Tel: +971 4 428 9221, email: [email protected]

Bahrain: Nicolas Angio, Tel: +973 17 530 217, email: [email protected], web: www.apexfundservices.com

With over $16bn of assets under administration, Apex Fund Services is the world’s largest independent fund administration company. With 21 offices across the globe, the company’s growth is very much at the heart of Apex’s philosophy of providing personalised fund administration services by being based in the same location as our clients. Apex recently launched the world’s first ever real time Middle Office service – called MOOR giving fund managers on the spot access to a unique portfolio management system.

Cheryl Packwood, CEO, Tel: +1 441 292 0632, email: [email protected], web:www.businessbermuda.org

Thomas Kelly, Consultant, UAE & Bahrain, Tel: UAE +97150 265 1755, Bahrain +973 3940 5960, email: [email protected]

Business Bermuda is an organisation of Bermuda companies who provide professional services to international business clients. Bermuda presents a unique opportunity to support the creation and development of Islamic financial products including retakaful, Shariah-compliant funds and sukuk. Bermuda is well positioned to emerge as an Islamic funds hub in the western hemisphere.

Kerri Lefebvre, Director and Head of Office, Dubai, Tel: +9714 428 2900, email: [email protected]

Fawaz Elmalki, Associate, Dubai, Tel: +9714 428 2900, email: [email protected]

Conyers Dill & Pearman is a multi-jurisdictional law firm that advises on the laws of the Cayman Islands, Bermuda, British Virgin Islands and Mauritius. The firm specialises in company and commercial law, commercial litigation and private client matters. Conyers’ structure, culture and expertise enables the firm to consistently deliver on the promise of providing the highest quality, responsive, timely and thorough legal advice.

Scott Watson-Brown, Partner, Tel: +1 (441) 299-7156 , email: [email protected]

Belaid Jheengoor, Senior Manager, Tel: +1 441 299 7190 , email: [email protected]

PwC is the largest professional services firm in Bermuda, comprising 13 partners and over 210 staff. From our offices in central Hamilton we offer clients a broad range of services, focusing on the unique needs of individual markets and industries.

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BERMUDA. THE JURISDICTION OF CHOICE.

With long-standing, solid regulatory standards and a position of transparency and cooperation, Bermuda has become a world-leading jurisdiction in the financial services sector. The 21 TIEAs currently signed and our position as Vice Chair of the OECD Global Forum are testament to our robust and effective regulatory policies. Bermuda is a prudent and profitable place to do business.

For more information visit businessbermuda.org

BermudaPremier

jurisdiction

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bermuda mena-2011

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