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  • 1. D I ST 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 FEATURING - Altree Financial - Apex Fund Services - Bermuda Commercial Bank - Bermuda Stock Exchange - Business Bermuda - Conyers Dill &I N A S S O C I AT I O N W I T H Pearman - Government of Bermuda - PwC BERMUDA 2011 ME NA FUND MANAGER OPEN FOR BUSINESS Bermuda actively strengthens links with the Mena region SHARIAH-COMPLIANT FUNDS Takaful, retakaful, mudarabah, musharakah and sukuks INTERNATIONAL RECOGNITION The island’s excellent international reputation as a gateway to multiple markets
  • 2. 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. Asset Management and Islamic Finance Scott Watson-Brown Belaid Jheengoor© 2011 PricewaterhouseCoopers. All rights reserved. In this document, “PwC’ refers to PricewaterhouseCoopers (a Bermuda partnership), which is a member firmof PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
  • 3. b e r m u d a r e P O r T 2 01 1 Me NA FunD mAnAgERReport editor Elizabeth Goodwin+44(0)207 029 ContentsReporter Annie Roberts+44(0)207 029 4061a.roberts@pageantmedia.comProduction editor Claudia HonerjagerSub-editor Rachel KurzfieldDesign Matt McLean 04 Introducing the 17 A local service with jurisdiction global reachPublishing Director Nick Morgan The Hon. Patrice K. Minors, minis- Altree Financial talks to MENA+44 (0) 207 029 4091 ter of business development and FM about the mutually tourism, welcomes readers to this links between Bermuda and the prestigious report and highlights Mena regionAssociate publisher Thomas O’Riordan her island’s links with the Mena region 20 All shapes and sizes+44 (0) 207 029 4031 S Randy Morris of BCB 06 Bermuda: the ideal Services Limited explains how aPublishing manager Ché Feenie host for Islamic finance hands-on, fully comprehensive Cheryl Packwood of Business administrative service can help+44 (0) 207 029 4033 Bermuda shows how the jurisdic- your investment fund – tion is perfectly set up for the its size Islamic finance industryBusiness development manager 22 Rising to theLarissa Matley 09 Reaping the benefits challenge+44 (0) 207 029 4093 Peter Hughes of Apex Fund Fawaz Elmalki of Conyers Dill & Services explains how the firm’s Pearman explains how offshore Bermuda office enhances its glo- domiciles are meeting investors’Circulation manager Fay Muddle bal network as well as champion- new demands ing local needsSubscriptions Ben Privett 24 Onwards and upwards+44 (0) 20 7029 4022 12 Your domicile of choice Greg Wojciechowski of for Shariah-compliant Bermuda Stock Exchange funds explains how Bermuda is put-Editorial director Belaid Jheengoor of ting a challenging year behind it,Gwyn Roberts PricewaterhouseCoopers explains and looking forward to expan- how Bermuda is encouraging the sion into the Mena region in theChief executive development of Islamic finance months aheadCharlie KerrPrinted by Wyndeham Grange © 2011 all rightsreserved. No part of this publication may bereproduced withoutwritten 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 9PTTel: +44 (0)20 7029 4000 Fax: +44 (0)20 7029 4001 0 3
  • 4. Featurewelcomegovernment of bermuda Introducing the jurisdiction The 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 regionI t gives me great pleasure to in- the Gcc include the use of the dom- Last July, then-minister of finance troduce this special supplement icile for family offices and for invest- (now Premier of Bermuda) the Hon. to mena fund manager. Ber- ment companies. In addition, many Paula cox led a highly success- muda has forged strong links in of Bermuda’s insurers and reinsur- ful trade mission to Bahrain, with a the middle east in recent times ers provide the risk coverage that is delegation from the ministry of fi-and especially with the Gulf co-op- essential to the region’s infrastruc- nance, including then-finance Sec-erative council (Gcc) region. ture projects and we increasingly retary (now cabinet Secretary) mr The strategic relationship that see investors from the Gcc region Donald Scott, and representativeshas emerged with the Kingdom of making valuable direct investments from the Bermuda private sector.Bahrain especially is an obvious one in our tourist industry. we met H.e. Sheikh ahmed bingiven the similarities between the Bermuda and the Gcc can and mohammed al-Khalifa, Kingdomtwo islands – both have rather small will continue to work together to of Bahrain’s minister of finance, aspopulations and rely heavily on the build on the relationships that have well as local business leaders. Thefinancial services sector. already been formed and we hope two countries jointly sponsored the Bermuda’s commercial ties with to forge new ones. first Kingdom of Bahrain/Bermuda 0 4 4
  • 5. conference on global financial and my government welcomes Islamic compliant funds, sukuk, and wealthinsurance services during that trip. finance. Bermuda stands on its rep- management products. where other Developing a strategy for Islamic utation for the highest standard of jurisdictions have growing tax andfinance in Bermuda, attracting in- integrity and honesty in its econo- regulatory impediments, Bermudavestors, capital and businesses from my, which are prerequisites for the has tax neutrality and an effec-the Gcc region fits perfectly with successful development of an Is- tive, non-discriminatory regulatorymy Government’s stated objectives lamic finance industry. framework.of expanding the economy and jobs as a world-class financial cen- The strategic relationship be-creation. tre, Bermuda offers Islamic inves- tween the Kingdom of Bahrain and a significant step forward in the tors the same advantages that have Bermuda is a natural one. firmsdevelopment of Islamic finance in made it the domicile of choice for based in both countries provide aBermuda was the signing of a dou- the world’s leading investment broad range of financial services toble taxation agreement with the companies, banks and of course re- clients based in other jurisdictions.Kingdom of Bahrain. This agree- insurers. as H.e. Sheikh ahmed bin moham-ment will help to enhance business Bermuda’s legislation is robust, med al-Khalifa has pointed out, theties and investment opportunities but it is flexible enough to accom- combined assets of the financial in-with the Kingdom of Bahrain, which modate innovative Islamic financial dustry in both countries amount tois itself an important Islamic finance products and structures. In fact, the many multiples the size of their re-hub within the region. first sukuk to be based on owner- spective economies. The recent credit crisis strength- ship interests in aircraft assets and we can use these shared ambi-ened the case for alternative in- rights came from Ge capital Sukuk, tions to our mutual advantage byvestment approaches and different a Bermuda exempted limited liabil- exchanging expertise and ideas. Iways of raising capital in the global ity company. am sure that this special publicationcapital markets. against that back- Bermuda is literally in the right will contribute to further explora-ground, Shariah-compliant financial place at the right time to build on tion of the exciting potential syner-products and services are set for its strong investment fund industry gies and opportunities that exist ongrowth. and develop innovative Shariah- both sides. 0
  • 6. FeaturereportBErmudaBermuda: the idealhost for Islamic financeCheryl Packwood of Business Bermuda shows how the jurisdiction isperfectly set up for the Islamic finance industryt hat Bermuda is an important This is not simply an aspiration; it is of course much of that investment is international financial centre something we are already doing. For coming from Muslim countries, the comes as no surprise to those in example, the $500m Islamic bond, or potential of Islamic finance extends the industry, but that Bermuda sukuk, issued by GE Capital in 2009 beyond just Muslim investors. Just as is a leading player in the Islamic was structured using a Bermuda lim- an example of the appeal of the in-finance industry, one of the world’s ited liability exempted company. This dustry, approximately half of Islamicfastest growing asset classes, is more transaction has served as proof of mortgages in Malaysia are held byunexpected. the benefits that businesses outside non-Muslims. Some investors might wonder why of the Muslim world can gain from It should come as no surprise thatBermuda places such an emphasis on Shariah-compliant investments. And it in a world which is still adjusting toa sector that would seem on the sur- was a transaction in which Bermuda’s the effects of the sub-prime crisis, theface to be aimed at Muslim investors, openness to Islamic finance played a Madoff scandal and seemingly soundand why investors and institutions key role. financial institutions being bailed outconcerned with compliance to Shari- by governments, more and moreah principles would look to Bermuda. Fuelling economic growth people are interested in a form of in-But the strength of the industry and For fund managers, the benefits of vestment which is asset-based andBermuda’s contribution to it speak for Islamic finance can be felt in two places ethical principles at its core. In-themselves. ways. Firstly, Shariah-compliant fi- deed, the global Islamic funds indus- Simply put, Islamic finance is a form nancial products provide managers try is already sizeable, having grownof partnership in which the investor with a great way of making their cli- at a rate of 15% per annum over theand the institution share the benefits ents’ money work harder in important last decade.of the investment if it is successful growth markets. Governments and If the arguments for investing in Is-and the downside of the investment if businesses in the Middle East and in lamic finance are strong, the case forit is unsuccessful. All investment also South East Asia will require large in- doing so from Bermuda are no lesscomplies with the ethical principles of vestment to help to fuel economic so. Some reasons will be familiar toShariah law. growth. As these economies grow, top international fund managers. The The global Islamic finance industry so will the opportunities to invest in qualities that make Bermuda a lead-currently stands at $1tn and accord- Shariah-compliant products. At a time ing destination for conventional fundsing to industry leaders; the market is when returns are hard to find, the op- also help to make us a top destinationexpected to double within the next portunity for exposure to these fast- for Islamic funds.5 years. Much attention has, unsur- growing economies is one that man- Firstly, Bermuda has regulation thatprisingly, focused on areas with large agers can ill afford to ignore. meets with the highest internationalMuslim populations, in particular Ma- Secondly, Islamic funds provide standards. So the best in the industrylaysia and the Gulf. But other juris- a way for firms to tap into a grow- can compete on a level playing field,dictions, such as Bermuda, have also ing pool of individuals and institu- without having to worry about loop-been playing an important role in the tions that are interested in ethical and holes being exploited by unscrupu-industry. Shariah-compliant investments. While lous players. That is the reason that 0 6 6 WWW.MENAFM.COM
  • 7. Cheryl PaCkwood CEO Business BermudaBermuda is on the OECD’s White something in return. That is why we general financial centre, we have alsoList, why we are the Vice Chair on the have no income, capital gains, sales, adapted our industry in order to pro-Steering Committee of the OECD’s wealth or value added tax. So more of vide an environment in which Islamicnew Global Forum and why we have the money that they earn stays with finance can thrive. For example, thenever been sanctioned for failing to them and with their clients. At a time asset-based nature of sukuk can cre-match up to the high standards we when returns are tough, and client ate extra costs in those jurisdictionshold ourselves to. But while we are expectations tougher, it is an offer that impose a stamp duty. Bermuda has no stamp duty, and our tax neu- trality means that we are able to“In addition to our strengths adapt more quickly to innovation inas a general financial centre, the industry. So Islamic finance firms can pursue the innovation that the in-we have also adapted our dustry needs to develop without the need to wait for changes in tax policy.industry in order to provide Furthermore, we have signed a Dou- ble Tax Agreement with Bahrain, onean environment in which of the world’s leading Islamic finance centres. This not only gives firms anIslamic finance can thrive” 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-tough with wrong-doers, our consult- that makes sense. oping with key countries in the region.ative approach to regulation means Finally, we provide the infrastruc- So whether it is the support thatthat firms can be sure that they will ture that a modern fund manager firms need in order to invest profitablynot have unworkable new rules forced needs for success. That is true of the in Shariah-compliant products, or cre-on them overnight. technology that allows them to keep ating the right environment for setting Secondly, Bermuda is an economi- on top of investments from Rio to up the funds and instruments thatcal destination. We know that to at- Riyadh. But it is also true of the law- can appeal to investors and corporatetract fund managers from traditional yers, accountants and auditors that in the growing international Islamicfinancial centres like London and are vital to a thriving financial sector. finance market, Bermuda is an excel-New York, we have to offer them In addition to our strengths as a lent position. 0 7WWW.MENAFM.COM
  • 8. 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 Street Hamilton, HM 11 Bermuda Tel: 1.441.292.7212 Fax: 1.441.296.1875 web: www.bsx.comThe 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. e-mail:
  • 9. FeatuRe report BErmuda AdministrAtionpeter hughesGroup managingdirector, Apex FundServicesReaping the benefitsPeter Hughes of Apex Fund Services explains how the firm’s Bermudaoffice enhances its global network as well as championing local needsW ith a tighter regulatory sys- lation regime, lower tax jurisdiction, its cess to a unique portfolio management tem and an increasing de- location, the wide availability of experi- system. mand for a wider range of enced service providers and the quality We have the capability to service any services, the administrative of life that is enjoyed on the island. size fund, fund structure or fund strat- burden of servicing funds egy in any fund domicile. Our range oflooks set to intensify in 2011. Peter MFM: What contributed to Apex’s of- services is particularly important as fundHughes, Group Managing Director of fice in Bermuda winning the best fund managers continue to demand higherApex Fund Services, explains the ben- administrator award at 2011’s Service levels of service from their administra-efits of locating in Bermuda, one of the Providers’ Awards? tors and with the regulatory system setworld’s premier offshore financial cen- PH: Our business has matured; we have to tighten, the Apex global network,tres, and how they plan to rise to the 25 members of staff and are one of the which originated in Bermuda, is demon-challenges ahead. larger administrators actually operat- strating its strength. ing in Bermuda now. Having a model MFM: What is the importance of fundMENA Fund Manager (MFM): What at- where there is one staff member deal- administrators locating alongside theirtracted Apex to set up an office in Ber- ing with each part of the service spe- clients in Bermuda and what benefit domuda and how important is this office cifically, builds a close relationship with staff with local knowledge bring to thein terms of your global network? the client. We provide a whole range of service?Peter Hughes (PH): Bermuda is a wellknown centre of excellence for fundadministration and is associated withother quality jurisdictions. I was based “Our focus, not only inthere previously when I was a fund offunds manager and being one of the Bermuda but throughoutmain centres for outsourcing our fundadministration historically, it was a logi- the Apex group, is on beingcal place to set up. It has an establishedreputation that is founded on the qual- responsive”ity rather than quantity of the financialtransactions that originate there. The island has long been regarded services including, but not limited to, PH: Our focus, not only in Bermuda butas an exceptionally well-regulated juris- reconciliations, net asset values (NAVs) throughout the Apex group, is on beingdiction largely as a consequence of the and shareholders services, which, com- responsive. Our model is the opposite tooversight of the Bermuda Monetary Au- bined with the technology we have de- many of our competitors who use bigthority, which screens those individuals veloped, puts us ahead of our competi- outsourcing centres. In Bermuda espe-who wish to do business from or within tors. Risk management is going to be cially, a lot of work is done in Canadathe island. As a leading offshore centre, an area of increasing focus for invest- but a lot also goes through India or evenBermuda has all the essential compo- ment managers. In response and to help South Africa where the delay of waitingnents necessary for a robust interna- managers, Apex launched the world’s to get answers from outsourcing cen-tional business community. Some of the first, real-time Middle Office Operational tres to clients can be a couple of days,many advantages of doing business in Risk service (MOOR). This breakthrough whereas we aim to deliver the informa-Bermuda include its progressive regu- gives fund managers on the spot ac- tion within half an hour. 0 9WWW.MENAFM.COM
  • 10. report FeatureBermudaAdministrAtion 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 “we are advancing our investors and Bermuda has an excel- lent range of products on offer. another technology to provide benefit is the close proximity between apex’s Bermuda office and the four in an independent risk and the middle east, which means we can deliver Bermuda products efficiently; compliance tool” in the right time zone with people that speak arabic. MFM: What developments do you have There are constant debates about called on to do more in terms of pro- planned for the year ahead and will youhow to deliver the service in different tecting the investors in their funds and be launching into any new territories?jurisdictions and, therefore, by being lo- also protecting the reputation of regu- PH: our objective for 2011 is to continuecated in them you understand what the lators. By being located in the same to deliver our model, locating close toissues are. apex’s philosophy is based time zone as our clients we can deliver where we identify pockets of funds ofon providing personalised fund admin- a more responsive service, which is in our managers that are not serviced lo-istration services by being based in the the right jurisdiction and time frame. I cally, and we are looking to expand intosame location as our clients. This ena- believe it is going to be harder for some another six or seven different countries.bles us to build working relationships of our competitors to really meet these we have an office in cork and are open-with our clients so we can properly needs when they are trying to do it from ing an office in Dublin. we also want tounderstand their businesses, their local big outsourcing centres in different open a regulated office in London andregulatory frameworks and help them time zones. have plans to expand into Zurich, Ge-grow their businesses. neva and moscow. we believe there is a MFM: How does Apex propose to take growth market in Sydney and melbourneMFM: What new challenges will regula- on the increasing number of funds reg- as australia does not seem to have beentory changes bring to fund administra- istered in Bermuda? too badly affected by the global finan-tors in 2011? PH: with over $16bn of assets under cial crisis, and we are also considering aPH: fund administrators will need to administration and 200 employees, couple of locations in South america.provide a wider spectrum of services, apex services its clients through 21 of- we may not be able to achieve it allwhich includes not only a regular naV fices across the globe and its culture of this year but we want to just focus onbut also middle office, risk and order personal and responsive client servicing, differentiating what we do from ourmanagement systems. To meet this which originated in Bermuda, is still the competitors by locating exactly whereincreased burden on administrators, basis of the company. The main advan- the fund managers are so we can de-we are advancing our technology to tage of our model is that it is technologi- liver our work quickly and understandprovide an independent risk and com- cally advanced; because each member the nuances of doing local business inpliance tool. administrators are being of can service five or six funds a month, different markets. 1 0
  • 11. FeaturereportBErmudaYour domicile of choice forShariah-compliant fundsBelaid Jheengoor, of PricewaterhouseCoopers, explains how Bermuda isencouraging the development of Islamic financet he Bermuda government is actively low taxes together in a prestigious inter- are developed by the global market, engaged in promoting the develop- national financial centre. Bermuda offers promoters the ad- ment of Islamic finance in Bermuda Bermuda is a perfect location for Shari- vantages of effective tax structuring and exploring ways to support its ah-compliant asset managers to expand and speed to market. growth. These initiatives build on globally, access the US market and devel- • A double tax agreement signed withthe existing relationship between Ber- op a globally recognised Shariah-compli- Bahrain provides structuring oppor-muda and the Gulf Co-operation Council ant asset management brand. tunities for investors accessing the(GCC). Investors from the GCC already GCC region.invest heavily in Bermuda-based invest- Bermuda’s value proposition for • Bermuda has a strong alternativement funds and have significant interests Shariah-compliant funds fund industry, a highly regardedin the local hospitality industry. Financing Bermuda has certain competitive ad- regulatory environment, goodvehicles originating from the GCC use vantages that make structuring Shariah- speed to market and high-quality in-Bermuda-exempt companies and trusts compliant funds particularly attractive. sukuk, investment holding and wealth These include: • Shariah-compliant fund sponsorsmanagement structures. • Its concentration of intellectual capi- benefit from the presence of world- Bermuda provides a favourable envi- tal arguably exceeds that of com- class asset management firms, fundronment for establishing Shariah-compli- peting jurisdictions. Bermuda has administrators and other profession-ant funds given its position as one of the a pool of talented people including als. Funds can be listed on the Ber-world’s leading jurisdictions for the asset administrators, lawyers and account- muda Stock industry and the govern- ants who are used to dealing with • Bermuda offers opportunities forment’s receptive attitude to new entrants complex products. They also have a asset managers to provide Shari-to the market. Bermuda offers an excel- long history of working with emerg- ah-compliant asset managementlent and stable platform from which fund ing markets and can provide a high services to Bermuda’s emerging re-promoters and investment managers level of customised service, which is takaful/retro-takaful (Islamic reinsur-seeking to expand their Shariah-compli- a requisite of private equity funds. ance) industry.ant product offerings globally can con- • Bermuda’s situation geographicallyfidently launch, manage and administer (with easy access to and from New Structuring Shariah-compliantsuch products. York and London) serves as a hub for investment funds Bermuda is not only attractive for the the asset management industry and Shariah-compliant funds are similar indomiciliation and administration of funds, it is, therefore, well placed to emerge their set up to conventional funds andit also benefits from the presence of the as an offshore platform for Shariah- the Shariah element can be viewed veryworld’s top investment management compliant funds originating and/or much as an overlay, comparable to a fundfirms, as well as large independent hedge targeting the US market. established with a ‘socially responsible’fund and private equity fund managers. • Bermuda’s tax neutrality is a com- investment ethos. The same principlesAsset managers locate their operations petitive advantage over its onshore and requirements under the Bermudain Bermuda because it offers one of the competitors. As more innovative and Investment Fund Act apply to Shariah-world’s highest standards of living and complex Islamic financial products compliant funds. Generally there are no 112 2 12 WWW.MENAFM.COM
  • 12. belaid jheengoor PwCrestrictions in the investment objectives asset management brand in this sector. while losses are borne solely by the capi-under the Bermuda’s Companies Act tal provider unless the losses are due toand Investment Fund Act. The specific Private equity/venture capital, real the entrepreneur’s misconduct, negli-Shariah-compliant requirements and estate and global infrastructure gence or breach of contracted terms.restrictions can easily be incorporated funds Musharakah is a profit and loss sharinginto a fund’s offering memorandum/pro- The choice of domicile for GIFs and contract that involves a partnership be-spectus. PEFs is driven by investors’ need for tween two parties both of whom provide There is growing demand from affluent tax-efficient and transparent structures, capital towards the financing of new orMuslim investors living in Western coun- balanced with robust regulations and established projects. Both parties sharetries (US & Europe) for global Shariah- regulatory oversight. GIFs often take the profits on a pre-agreed ratio, allow-compliant investments. Moreover, there the form of traditional PEFs domiciled ing managerial skills to be remunerated,is a shift in investors’ preference away in an international financial centre, such with losses being shared on the basis offrom traditional Shariah-compliant asset as Bermuda. equity participation. One or both partiesclasses, such as equities and real estate, There is a close relationship between can manage the favour of alternatives such as ETFs Islamic tenets of investment and PEFs. A Shariah-compliant PEF is typicallyand hedge funds. There is also pressure Both are participatory in nature, lead to structured as an exempted limited part-on GCC/Middle East institutions such as the sharing of risks and rewards, invest nership. Bermuda’s limited partnershipsovereign wealth funds and government in the real economy, take a long-term rules accommodate both the mudarabahpension funds to include a Shariah-com- view on investments with an exit plan, and musharakah structures. The Ber-pliant mix within their portfolio alloca- and align the interest of the stakeholders. muda Partnership Act does not attempttions. Shariah-compliant PEFs focus on acquir- to regulate the affairs of a partnership to Despite the current shortage of accept- ing majority stakes in privately held Sha- any great extent. The specific require-able alternative investment products and riah-compliant companies and projects. ments of either structure can easily belimitations of certain hedge fund strate- One significant difference is profit and incorporated into the partnership agree-gies, the future for the development of loss sharing and manager remuneration ment. Bermuda structures are also suit-Shariah-compliant alternative investment determination. able parallel vehicles to accommodatefunds looks promising. The recent ISDA/ Two of the main Shariah principles both Muslim and non-Muslim investors. Structuring and listing global“Bermuda, as a centre of sukuk transactions Sukuk, Islamic fixed-income securities,excellence for the alternative has emerged strongly over the past 15 years as an important asset class. The GEfund industry, can help Capital Sukuk, offered under Regulation S and structured using a Bermuda limiteddevelop innovative Shariah- liability exempted company, represents acompliant alternative significant development for the global sukuk market because it was the firstinvestment funds” 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 andIIFM Hedging Master agreement is a posi- governing Shariah-compliant PEFs are rights under the aircraft assets’ leases.tive move for Shariah-compliant hedging mudarabah and musharakah. The recent credit crisis did much toproducts that will help Shariah-compliant A mudarabah contract is a partner- strengthen the case for alternative in-hedge funds develop. ship under which an investor provides vestment approaches and ways of rais- Bermuda, as a centre of excellence for capital to another person/body (such ing capital in the global capital markets.the alternative fund industry, can help de- as the manager), who uses his expertise Sukuk is one of the fastest emerging al-velop innovative Shariah-compliant alter- to devise a suitable investment strategy. ternative instruments and is increasinglynative investment funds and, therefore, Profits generated by that enterprise or used by governments and corporationscan contribute to the development of a activity are shared in accordance with in the Middle East and south-east Asia toglobally recognised Shariah-compliant the percentage specified in the contract, access global capital markets. 1 0 3 13WWW.MENAFM.COM
  • 13. RepoRt FeatureBErmuda The sukuk market is emerging as a new legislation is attractive for Islamic cross-border investment asset class, bringing diversifica- finance structures. A private trust • It adopts a non-discriminatory,tion and widening its geographic reach. company is a company with trustee religion-neutral regime for sukukA number of jurisdictions in Europe (UK powers that is not required to be li- listing under its Specialised Debt list-and France) and Asia (Japan, Korea and censed under Bermuda trust legisla- ing rules.Thailand), have developed or are devel- tion, provided that by the terms of its • The fully electronic capabilities offeroping legislative and regulatory initiatives memorandum of association it is em- attractive opportunities for listingto enhance their ability to explore the su- powered to act as trustee of only a Regulation S sukuk offerings.kuk market for the first time. Such moves limited number of identifiable trusts. • Bermuda offers administrative andcould also prompt other jurisdictions, • A double tax agreement signed cost efficiencies in that issuers maysuch as the US and Canada, to pursue with Bahrain provides structuring structure and list sukuk in a single ju-similar efforts. opportunities for accessing the GCC risdiction. The growth in the global sukuk mar- region. The BSX is suitable for listing a diverseket presents an opportunity to further range of Islamic financial products, in-strengthen the development of sukuk Structuring global sukuk cluding investment funds and ETFs.funds. Sukuk funds provide investors with transactionsdiversification away from traditional eq- The GE Capital Sukuk is proof that Ber- Cross-border investments anduity and real estate funds and at the same muda’s laws are tried and tested by rating capital raising transactionstime produce fixed income returns. agencies, regulators and investors global- Bermuda not only serves as the domicile ly for sukuk structures. Bermuda vehicles of choice for structuring Shariah-compli-Unique value proposition for are suitable for financing structures for ant financial products such as funds andstructuring global sukuk the acquisition of global portfolios of as- sukuk, but plays an even more impor-transactions sets, for example the GE Capital Sukuk, tant role in facilitating Shariah-compliantAlready recognised as a centre of ex- structured as an ijarah sukuk was issued cross-border investments and capital-cellence for the domicile, management, to finance a global portfolio of aircraft raising activities, particularly in relation toadministration and listing of investment leases. the US capital markets. An independentfunds and structured finance vehicles, Bermuda companies and trusts are at- study carried out in May 2010 by AlbrightBermuda is a natural choice as a juris- tractive for various sukuk structures such Stonebridge Group (US – Bermuda Eco-diction for sukuk issuers, and has cer- as mudarabah (investment partnership), nomic Relations: Economic Impact Studytain competitive advantages that make musharakah (profit and loss sharing), – 2010) confirmed that Bermuda’s inter-structuring sukuk particularly attractive. murabaha (cost plus), ijarah (leasing), national business environment providesThese include: istisna’a (construction contract), and competitive advantages for US business- • There is no stamp duty on any instru- wakala (agency contract). es striving to compete globally. ment affecting or relating to interna- Bermuda offers an excellent and very tional businesses in Bermuda. This is Bermuda Stock Exchange: an stable platform from which sukuk issuers a key consideration for global sukuk attractive listing location for can confidently structure and list cross- issuances. global sukuk transactions border sukuk transactions originating • There is no exchange control for non- The Bermuda Stock Exchange (BSX), as from and/or accessing US capital mar- resident undertakings and no restric- the world’s leading fully electronic off- kets. To the extent that sukuk issuances, tion on repatriation of funds. shore securities market, is an attractive or similar capital raising activities, seek to • Bermuda has modern corporate listing location for cross-border sukuk attract US investors, or if a US corpora- and trust legislation, both of which transactions: tion is involved, close attention must be are attractive for sukuk structures. In • It offers issuers the opportunity to paid to ensuring that the transaction falls Bermuda, a special purpose vehicle be listed on an internationally rec- within the scope of at least one exemp- (SPV) typically takes the form of an ognised stock exchange with the tion from the registration requirements exempted company under the Com- unique geographic position between of the US Securities Act of 1933. The two panies Act 1981. two of the deepest capital markets in main exemptions relevant for US sukuk • Bermuda companies may adopt a the world. transactions are provided under Rule secondary name in non-Roman script • It provides high regulatory standards, 144A and Regulation S. such as Arabic with the approval of visibility for issuers and transparency The GE Capital Sukuk was offered un- the Registrar of Companies. for investors, which facilitates cross- der Regulation S, and a number of recent • Bermuda’s private trust company border flow of capital and bridges sukuk issuances have been structured 1 4 WWW.MENAFM.COM
  • 14. RepoRt BErmudato meet the requirements for ‘resales’ to finance growing infrastructure projects 4. Global fund platformsUS investors under Rule 144A. This could and other ventures, to structure and list Recent economic developments in thesignal the beginning of a trend to attract a Bermuda-based sukuk to benefit from GCC/Middle East and south-east AsiaUS investors and issuers to the emerging Bermuda’s reputation as a jurisdiction of regions present US, as well as global,global sukuk market. choice for structuring cross-border trans- investors who are seeking geographic Moreover, Bermuda provides an attrac- actions. and product diversification with lucra-tive platform for investors seeking global tive opportunities to invest in sukuk issu-diversification to their Shariah-compliant 3. Access to US investments / Innovative ances (either directly or via Sukuk funds)investment portfolios and access to US alternative Shariah-compliant invest- and other investment products (suchinvestments. Bermuda investment struc- ment funds and sukuk structures as investment funds, private equity andtures are attractive for global fund plat- Investors such as sovereign wealth funds, infrastructure projects) targeting theseforms targeting mainly US, as well as institutions and high-net worth individu- regions. To facilitate such cross-borderglobal, investors seeking investment op- als (HNWIs) from GCC and south-east investment flows, it is vital to have tax-portunities in the GCC/Middle East and Asia regions who are seeking to diversify efficient global fund platforms in a repu-south-east Asia regions. their global Islamic investment portfo- table jurisdiction, such as Bermuda, and There are several value propositions lios and access US investments can do benefit from its regulatory environment,regarding cross-border investments and so by investing in Shariah-compliant US high-quality infrastructure, and world-capital-raising activities, focusing on the securities such as sukuk, listed securities class fund administrators.US market, using Bermuda as a gateway: screened for Shariah-compliance and To summarise, the key benefits of hav- private equity. There are significant op- ing Bermuda-based global fund plat-1. US access to global capital markets portunities for US promoters to service forms targeting investment opportunitiesThe first value proposition is for US-based such investors and Bermuda structures in the GCC/Middle East and south-eastcorporations seeking alternative ways of which are accepted and trusted globally Asia regions are: • They provide access to alternative asset classes in emerging markets.“Bermuda offers an excellent • They are attractive to US/global ethi- cal investors seeking access to social-platform from which sukuk ly responsible investments in emerg- ing markets.issuers can structure cross- • They are attractive to investors seek-border sukuk transactions” ing investment diversification. The US offers significant opportunities for a second phase expansion of the glo- bal Islamic finance market, in particularraising capital globally (mainly from GCC can be used to develop innovative sukuk the global sukuk market. The increasingand south-east Asia), for debt refinancing structures as well as alternative Shariah- numbers of sukuk offered under 144Aand/or more suitably to finance a global compliant investment funds such as and Regulation S is strong evidence thatportfolio of assets, to structure and list a hedge funds, private equity funds, fund US regulators understand this Islamic fi-Bermuda-based sukuk. For US corpora- of funds, ETFs, commodities funds and nancial product and apply a non-discrim-tions such as GE, a sukuk issue can di- sukuk funds. inatory regulatory regime. Additionally,versify their funding base and boost their There has been an influx of money into it demonstrates the growing willingnessprofile in the increasingly important Mid- the US capital market, the biggest in the among US investors to invest in suchdle East and south-east Asia regions. Us- world, from Middle Eastern investment products and presents opportunitiesing Bermuda corporate and trust vehicles, groups, particularly in the past decade. for US corporations to explore alterna-which have been trusted by investors and Gulf-based institutions have been making tive ways of raising capital in the globalcapital markets globally for many years, large investments in US real estate and markets.will facilitate such objectives. private equity. Banks and lawyers in the Bermuda, as a premium international US have had to come up with innovative financial centre, is well positioned to be-2. Global access to US capital markets structures that are suitable for Islamic in- come the most important Islamic financeThe second value proposition is for sukuk vestments. These deal flows are less vis- hub in the western hemisphere for suchissuers from GCC and south-east Asia ible, though large, because they are done Shariah-compliant cross-border invest-seeking to raise capital from the US, to privately. ments and capital-raising activities. 1 5WWW.MENAFM.COM
  • 15. “Sophisticated, dependable and e x t re m e ly e f f i c i e n t p r a c t i c e ” Chambers G lobal UAE (offshore) 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: • Investment Funds • Corporate and Project Finance and • Islamic Finance Security Arrangements • Private Equity • Aircraft and Shipping Registration, Finance • Formation and Structuring of Joint Ventures and Leasing • Formation and Structuring of Private • Incorporation and Formation of Holding and Trust Companies Investment Entities • Capital Markets • Corporate Restructuring and Insolvency Contact: Kerri Lefebvre: Fawaz Elmalki: T: +9714 428 2900BERMUDA BRITISH VIRGIN ISLANDS C AY M A N I S L A N D S DUBAI HONG KONGLO N D O N MAURITIUS MOSCOW S Ã O PA U LO SINGAPORE co n ye rs d i l l . co m
  • 16. FeAture report BErmudastuart laceyManaging director,Altree CustodyServices LtdA local service with global reachAltree Financial talks to MENA FM about the mutually beneficial linksbetween Bermuda and the Mena regionMENA FM (MFM): Why did Altree Fi- regulatory structure that appreciates in emerging and frontier markets. In-nancial chose to establish its global and understands the specific require- dependence permits us to select theheadquarters in Bermuda, and what ments related to Shariah-compliant best provider in each market and thusbenefits does your global view offer funds: including mudarabah, mushar- diversify counterparty risk – some-investors and money managers oper- akah and ijara for example, and takaful thing that we believe is necessaryating on the island? and retakaful business in the insurance for sophisticated investors; especiallyStuart Lacey (SL): Bermuda was an and reinsurance sectors. The Bermuda those who are looking to harness theobvious choice for our global head- government recently signed a double significant profitability and growth wequarters for multiple reasons: the taxation agreement with Bahrain, and believe that Africa will experience instrength of the regulator, the business- we are seeing a growing increase in the coming decades.friendly approach of the Ministry of sukuk issuance in Bermuda. The pro-Finance, the strong legal system, the fessional service providers and large MFM: What developments do youoffshore trust law, the extensive tax audit companies that the island has have planned for the year ahead?benefits and the high-quality technol- attracted are capable advisors in SL: In terms of work on the groundogy and communications infrastruc- these areas, and there is also a solid in Bermuda, we are dedicated to as-tures all came into play. Its physical lo- network of supporting accounting sisting the Bermuda government andcation; being one hour ahead of New and legal firms with relevant expertise. Business Bermuda in expanding andYork and four hours behind London, developing upon its already strongcoupled with the fact that it happens MFM: What makes Altree Financial’s reputation as a leading internationalto be a sub-tropical paradise, make offering to both Mena clients and financial a great location from which to do structures unique in this space? Altree is also focusing its atten-business. SL: Our key differentiating factor is tions on the Mena region, as this is a Bermuda is the executive head of our independence. We have a com- very important market for us. I will beour financial group, but we also have petitive advantage in our core market: speaking at a conference hosted byoffices in New York, London, Malta, a dedicated access to the investment Business Bermuda in Bahrain on the 16Johannesburg and Hong Kong. This markets of the entire African conti- February, and will be in the region forallows us to provide a localised serv- nent. We already have a number of several weeks during that time meet-ice to our clients, which is a deliver- Mena clients including banking inter- ing clients and building that we take very seriously. We ests in Egypt, Saudi Arabia, Tunisia, We believe it is important to us to bewill also be opening an office in Dubai and Morocco, as well as fund and cus- physically present in that market, towithin the next year in response to tody interests in several Gulf and GCC be seen and to be known. We alreadythe high level of interest that we are nations. Altree Custody is the only have an established presence in theseeing from clients in the region. We independent market participant to of- sub-Saharan and north Africa mar-are committed to delivering the best fer custody, settlement and clearing kets, and thus expansion into the GCCof both worlds: global presence and in more than 24 African countries. It region is a natural progression for us.reach; combined with local and per- does so through a single relationship, We also have a lot of complementarysonable service. accounting and consolidated securi- businesses that we work with within ties management system. Our pro- the Mena region, with multiple officesMFM: What makes Bermuda a suita- prietary network utilises and realises providing both fund administrationble location for both clients and com- significant cost savings to our clients, and asset management. We look for-panies in the Mena region? and simplifies many of the adminis- ward to doing more business with theSL: Bermuda has a strong legal and trative burdens of managing funds Mena region in the years ahead. 1 0 7 17WWW.MENAFM.COM
  • 17. RepoRt FeatureBermuda chris harkness finance director, altree Services Ltdthe offshore advantageChris Harkness, finance director of Altree Services Ltd, discusses thesearch for jurisdictional prudenceG lobal markets appear to be overall acceptability of the jurisdic- and new York. Similarly, the longstand- healing and evolving. Invest- tion of choice to the ultimate underly- ing credibility of the Bermuda mone- ment fund promoters (direc- ing investors. as such, ancillary issues tary authority (Bma) has resulted in a tors and managers) are paying such as offering restrictions, regula- significant and active trust and invest- close attention to the winds of tory position and tax/exchange con- ment fund and fund services sector.change. The financial lessons from the trols are being measured against the Bermuda reinforced this reputationpast three years and numerous other confidence, familiarity and preference by successfully implementing the inter-contributing factors have forced inves- of underlying investors when dealing nationally agreed-upon tax standard astors to scrutinise the offering and le- with the domicile in question. set forth by the oecD and gained uni-gal documents relating to their invest- at altree Services Ltd we believe versal recognition for having been thements. Specifically, fiduciaries have that investor preference will continue first offshore financial centre to ascendbeen tasked with the responsibility of to strongly influence the promoter’s to oecD white List status. By the dateoverseeing and interpreting the rapidly choice of fund domicile. as new regu- of writing, Bermuda had concluded itschanging financial landscape. This has latory initiatives (such as anti-money 22nd TIea, and had multiple doublerecently brought into acute focus the laundering, Tax Information exchange taxation agreements in place.domicile from which a manager choos- agreements [TIeas] and transparency) while other offshore jurisdictionses to operate. are integrated into the legal framework are running to keep up (and in so do- Historically, when considering where of leading offshore financial centres, ing implementing significant licensingto domicile a commingled investment investor preferences are changing and and annual regulatory fees) Bermudavehicle, the typical promoter was often the concept of jurisdictional prudence has retained a pricing model that putsfocused on the path of least resistance. is being challenged unlike ever before. it near the top of the list in terms of val-This had more to do with speed of exe- altree has headquartered its op- ue. additionally, Bermuda’s ministry ofcution and associated set-up cost than erations in Hamilton, Bermuda, and finance has dedicated itself to stream-with the integrity and credibility of the as such, is able to leverage Bermuda’s lining the incorporation processes forjurisdiction in question. Investment credible status for the purpose of de- offshore funds, partnerships and othermanagers relied upon offshore legal livering unparalleled jurisdictional pru- collective investments – making Ber-counsel for advice, with many simply dence to its clients. as the oldest and muda one of the quickest to market indeferring to their selection. most populous British overseas Terri- terms of implementation timelines. In the post-2008 environment, a tory, Bermuda benefits from the age The ministry has further reinforcednew focus – fiduciary responsibility of its judicial system and experience of this process by making legislative up-– has come to the fore. In lieu of the its regulatory authorities. Bermudian dates to the legal framework, ensuringnumerous contractual disputes involv- monetary authorities are widely rec- access to the latest corporate, trusting investment managers and their ognised as having both developed and and estate planning vehicles. This per-respective fund vehicles, jurisdictional implemented a risk-based framework mits professional investors to locateprudence has emerged as a critical ele- and capital model designed to ensure not just their investments, but also thement for consideration when attempt- the highest level of observance to best structures that support them, in oneing to gauge the beneficial elements of practices. complementary and price-competitiveoffshore structuring. as a result, Bermuda has emerged jurisdiction. This truly is paving the way Reflective of these renewed levels as the world’s second largest captive for a new wave of incorporations andof due diligence, eyes have turned insurance domicile and third largest re- business to make Bermuda their juris-to issues surrounding the status and insurance centre, behind only London diction of choice. 1 8
  • 18. LEADING THE WAY FORWARD IN FUND SERVICES. Entrepreneurial. Innovative. Proactive. Insightful. Viewing fund administration solutions from a different angle provides a fresh perspective. Our approach combines a commitment to service excellence, robust operating solutions and professional expertise in multiple financial jurisdictions—all tailored to suit your needs. Our insights will make a difference to your business, guiding your organization to focus on the possibilities, not the liabilities. To learn more on partnering with one of the worlds leading independent fund administration providers, please contact: Craig Roberts Managing Director, Dubai Tel: +971 4 428 9221 Nicolas Angio Managing Director, Bahrain Tel: +973 17 530217 Naveed Ashraf Managing Director, Saudi Arabia Tel: +971 4 428 9221 Abu Dhabi | Bahrain | Bermuda | Canada | Cayman | China | Cyprus | Dubai | Guernsey | Hong Kong | India | Ireland | Isle of Man Jersey | Luxembourg | Malta | Mauritius | Saudi Arabia | Singapore | UK | USAApex Fund Services (Dubai) Ltd • PO Box 506534, Office 101, Gate Village Building 5, Dubai International Financial Centre, Dubai, United Arab Emirates • Regulated by the Dubai Financial Services Authority Apex Fund Services (Bahrain) WLL • Bahrain Tourism Company Building, Diplomatic Area, Bahrain • Regulated by the Central Bank of Bahrain
  • 19. FeaturereportBErmudaAdministrAtionall shapes and sizesS Randy Morris, of BCB Fund Services Limited, explains how ahands-on, fully comprehensive administrative service can helpyour investment fund – whatever its sizeP revailing sentiment is that the needs; depth of service providers’ ex- or dividends. In addition, there are no worst may be over for the perience; and the widely respected exchange control restrictions, nor is offshore fund industry; how- regulatory framework and risk-based stamp duty payable on instruments ever, the reality is that while flexibility that ensures greater trans- executed by or on behalf of exempted this may indeed be the case, a parency and oversight. entities.large amount of capital once allocated In addition, over the past few years,to investment funds is still sitting in Bermuda has eliminated earlier re- Fresh startcash, and new fund incorporations are strictions and inefficiencies on doing Regardless of present health of thedown from previous highs. business. offshore fund industry, the old adage While Bermuda has certainly felt All fund administrators in Bermu- remains true in that out of crisis comesthe ramifications of the extraordinary da are regulated by the Investment new opportunities. This is highlightedevents in the global financial markets Funds Act 2006; licensed by the Ber- by the fact that some fund managersover the past few years, it continues muda Monetary Authority and sub- are now increasing their fund invest-to be regarded as a premier offshore ject to professional codes of conduct. ments, utilising an increasingly steadyfinancial and servicing centre and the Also, Bermuda’s favourable tax envi- inflow of new investor subscriptions;preferred jurisdiction for many fund ronment is another advantage that while other fund managers, recognis-managers. contributes to its position as the juris- ing the change in the global financial markets, are now incorporating new funds with different investment strat-“What happens to the egies that are better positioned to at- tract wary investors.smaller funds or the fund It is also very apparent that fund managers are looking for servicemanagers planning for new providers who can best satisfy their requirements efficiently and cost ef-fund launches who require fectively against this backdrop of changing times. Bermuda’s fund ad-a more hands-on approach ministrators are well positioned to meet this challenge, and take full ad-and a complete servicing vantage of any and all opportunities as they arise. But it is a fact that thesolution?” fluctuations in global financial markets have forced some changes among the ranks of the 43 licensed fund adminis- This is attributable to a number of diction of choice. Bermuda-exempted trators in Bermuda.factors, the most significant of which companies are granted an undertak- While all Bermuda fund administra-are its excellent professional repu- ing by the minister of finance, exempt- tors can provide some combinationtation; sophisticated infrastructure; ing them from all forms of taxation, of fund services, including fund ac-ability to handle sophisticated client whether on income or capital, profit counting, registrar and transfer agent 220 0 20 WWW.MENAFM.COM
  • 20. S RANDY MORRIS General manager, BCB Fund Services Limitedand corporate services, many of thelarger Bermuda fund administrationcompanies are now outsourcing muchof these activities to offices in otherjurisdictions in an effort to keep op-erational costs to a minimum. The larger administrators are alsoplacing size restrictions on the fundsthey administer and are choosing notto gamble on new fund managers ornew fund launches, instead preferringto concentrate on larger and alreadyestablished funds that can supportlarger fees. But what happens to the smallerfunds or the fund managers planningfor new fund launches who require amore hands-on approach and a com-plete servicing solution that also in-cludes banking and treasury servicesin conjunction with fund administra-tion? What happens to those fundmanagers who need to know how to Limited. All servicing is still performed Bank Limited and BCB Fund Servicesstructure their new funds, or require ‘in-house’ in its Bermuda offices with Limited has not changed since theya fund administrator to have much no outsourcing to other jurisdictions. were set up, as what they do now hasmore involvement with their fund in- worked in the past. The benefits tovestors? Mutual growth fund managers are immediate and ap- Traditionally this type of complete BCB Fund Services Limited readily preciable in that they have one serv-servicing solution was offered by the admits that it would be much more lu- ice provider who can offer them thelocal Bermuda banking institutions crative to only deal with billion-dollar solution to all of their administrationthat also had the in-house fund ad- funds, but it has learned that taking a and banking requirements at a muchministration servicing facilities. How- chance and servicing a wide range of cheaper cost than having several dif-ever, because of recent developments fund managers and funds, that include ferent service providers. In addition,there remains only one Bermuda the smaller fund managers and start- the fund manager does not have tobanking institution that can still pro- ups, can reap its own rewards with an pay for some big player brand thatvide a complete servicing solution to opportunity to mutually grow with a can often cost a lot more for a similarfund managers. successful fund manager. service. In this regard Bermuda Commercial The result of BCB Fund Services In any case, as with all other profes-Bank Limited, a Bermuda-registered Limited deciding to target its ap- sional services providers, BCB Fundbank focusing solely on commercial, proach to a niche group has been Services Limited recognises the im-corporate, institutional and high-net profitable, delivering satisfied fund portance of promoting and uphold-worth clients and offering an array of managers. BCB Fund Services Lim- ing Bermuda’s status as a premiertailored banking and treasury services ited prides itself on its ability to tailor offshore financial and servicing cen-and a full range of custody, fund ad- its services for any size fund; and by tre. Ultimately Bermuda’s continuingministration and corporate services, being a smaller operation compared success will be assured as long as allnow stands apart from the rest of the to the recognised ‘big players’, BCB those involved continue to providefield. Fund Services Limited keeps itself professional, high quality, efficient and Bermuda Commercial Bank Limited manageable and flexible enough so it cost effective solutions utilising theoffers fund administration and corpo- does not have to pigeon hole any of latest technologies available, therebyrate services through its fully licensed its clients with predetermined servic- ensuring the delivery of excellent fundand wholly owned administration ing parameters and fees. administration services for which Ber-services company, BCB Fund Services The ethos of Bermuda Commercial muda is so well known. 2 0 1 21WWW.MENAFM.COM
  • 21. FeaturereportBErmudaLegaLrising to the challengeFawaz Elmalki, of Conyers Dill & Pearman, explains how offshoredomiciles are meeting investors’ new demandsL eading offshore hedge fund domi- a fund in Bermuda offers undeniable in accordance with the fund’s offering ciles have come under scrutiny benefits including: a robust regulatory document or that the general manage- recently. In the post-Madoff and framework; ease and speed of establish- ment of the fund is not materially in ac- post-credit crisis environment, ment; service providers with a wealth of cordance with the provisions of its con- there has been a significant trend knowledge and experience; and no with- stitutive documents of the fund. Suchfor fund promoters to establish their holding, capital gains, transfer, wealth or disclosure increases investor confidencenew hedge funds in more regulated and income taxes for non-resident entities. as to the transparency of the fund. In thissupervised jurisdictions. Moreover, Bermuda is represented in way, fund managers have considerable Managers and promoters are seeking the Middle East by leading Bermuda law discretion and flexibility as to how thejurisdictions that offer a sensible regula- firms and service providers including fund’s affairs may be conducted, whiletory framework with ease of establish- fund administrators. investors are free to make appropriatement while respecting investor demand Bermuda’s strength and its growing and informed decisions based on theirfor greater transparency. They are no popularity with Mena fund managers own assessment of risk and reward.longer automatically turning to the may be attributed to a number of fac- Moreover, Bermuda’s investment funddomicile of their last fund. tors. fee structure is competitive, which ulti- Moreover, although very large hedge mately benefits both the manager andfund managers are adding Undertakings Effective legal framework the investor in regard to launch and on-for Collective Investment in Transferable Bermuda is an internally self-governing going expenses of the fund. BermudaSecurities (Ucits) domiciled in jurisdic- British Territory and offers all the secu- maintains a strong advantage becausetions such as Luxembourg and Ireland rity and stability traditionally associated of this sensible and workable approachto their existing offshore fund domicile with the British flag. It enjoys an inde- to fund regulation coupled with its so-offering, the reality is that for the vast pendent legal and judicial system based phisticated legal system rooted in Eng-majority of hedge fund managers, Ucits on English common law, with a right of lish common law.will continue to be too expensive and final appeal to the Privy Council of Eng-too restrictive. land’s House of Lords. Internationally recognised funds As one of the world’s leading jurisdic- Much of Bermuda’s success in attract- and anti-moneytions for hedge fund domiciliation and ing funds is the fact that the Bermuda laundering regulationswith a reputation for being one of the Investment Funds Act does not impose The BMA is responsible for regulating in-most regulated offshore jurisdictions, restrictions on the investment policies vestment funds, including hedge funds.Bermuda ticks all of the boxes for inves- or strategies a hedge fund may adopt, The BMA is a full member of Interna-tors, asset managers and fund promot- but instead requires active, ongoing and tional Organization of Securities Com-ers when choosing a fund domicile in thorough disclosure to investors. This mission (IOSCO). Bermuda is continu-this new paradigm. includes financial reporting and provid- ally seeking to ensure that its laws and In particular, Mena fund managers are ing an updated fund offering document regulations are in line with internationalincreasingly looking to domicile their when material changes occur. good practice.funds in Bermuda, in light of requests Further, the service providers (includ- The BMA requires that people whofrom investors to look to an alternative to ing the manager) of authorised funds wish to establish funds in Bermuda arethe Cayman Islands, which traditionally must notify the Bermuda Monetary Au- people of sound business integrity andhas been the offshore hedge fund domi- thority (BMA) and the investors if they good financial standing, in addition tocile of choice. From the Mena sponsor’s become aware that the assets of the having solid industry credentials. Theand manager’s perspective, establishing fund have not been invested materially BMA must be satisfied that all service222 2 22 WWW.MENAFM.COM
  • 22. fawaz elmalki Associate, Conyers Dill & Pearmanproviders to the fund are ‘fit and proper’. private equity funds) domiciled there.By maintaining such an approach, Ber- There are more than 2,000 investmentmuda has become the jurisdiction of funds (excluding closed-ended funds)choice for discerning fund managers. registered in and operating from Bermu- In addition, the BMA recognises the da. Hedge funds make up a significantimportance of the fund administrator’s proportion of such investment funds.role in providing greater transparency There are also a significant number ofregarding a fund’s asset valuations. For- unregulated investment funds, beingeign fund administrators must be rec- primarily closed-end investment com-ognised by the BMA while fund admin- panies and limited partnerships (whichistrators in Bermuda are regulated and are typically formed for private equitylicensed by the BMA and are subject to funds) in Bermuda.the BMA’s Code of Conduct for Fund A number of the larger funds areAdministrators. This supervisory over- quoted on stock exchanges such as Thesight leads to an enhanced reputation London Stock Exchange and The Hongin the industry as fund managers and in- Kong Stock Exchange. In addition, manyvestors are comforted by the BMA’s role funds, particularly those seeking Eu-in protecting the investors’ interests. ropean investors, are listed on the Irish Further, Bermuda is on the Organi- Stock Exchange or the Luxembourgsation for Economic Cooperation and Stock Exchange. The Bermuda modelDevelopment’s (OECD) ‘White List’ and for investment funds is tried and testedhas signed tax information exchange and it works.agreements with all G7 countries, as wellas 12 others, including India and China. Way forwardBermuda also recently signed a double Today, hedge fund managers and spon-taxation agreement with Bahrain and it industry. With its wealth of hedge fund sors driven by more risk-averse institu-will host the 2011 OECD Global Forum on expertise and continuous governmental tional investors are looking for more reg-Transparency and Exchange of Informa- consultation with industry experts with ulated hedge fund domiciles. However,tion for Tax Purposes. respect to enhancing its fund legislation, they still wish to domicile their funds in Bermuda continues to be a jurisdiction a legal and regulatory environment thatCentre of excellence of choice for investors who place in- supports wide ranging and unrestrictedOne of the principal attractions of Ber- creased emphasis on greater levels of investment strategies as well as a quickmuda is its established reputation. Spe- transparency, third-party service provid- and non-bureaucratic formation proc-cifically, Bermuda has long been an ers and rigorous due diligence on fund ess. Bermuda is well positioned to ben-established financial centre, having sanc- documents and custody and administra- efit from this new paradigm. It remainstioned its first ‘exempted company’ in tion arrangements. committed to attracting quality funds bythe 1930s, and now boasts a client base Bermuda is also well known as the offering political and economic stability,that includes a majority of Fortune 500 world’s second largest (after London) a legal system based on common law, ancompanies. Bermuda is an open, free- domicile for insurance and reinsurance abundance of professional service pro-market, tax-neutral economy that caters companies and is a centre of excellence viders and an efficient regulatory frame-to a global client base, serviced by highly for offshore aircraft and shipping regis- work of the investment industry thatqualified, sophisticated professionals. It tration and finance. Many of the world’s provides transparency and a centre of excellence for hedge fund largest insurance and reinsurance com- Over the years, Bermuda has strivedformation with a large infrastructure of panies, hedge fund administrators and through legislation and codificationprofessional legal, accounting, audit, ad- managers also have a physical presence of practices to meet the highest inter-ministration and fiduciary expertise. in Bermuda. national standards to ensure its name Bermuda is well known for its close would be synonymous with ethics andworking relationship between govern- Proven model quality. It is no coincidence that world-ment and private sector. This has created Bermuda is a major centre in the interna- class US, European, Asian and Menaa business environment that is efficient tional offshore investment fund industry fund managers have been domicilingand free of time-consuming bureauc- with more than $200bn of fund assets their investment funds in Bermuda forracy for the investment and hedge fund (excluding closed-ended funds such as many years. 2 0 3 23WWW.MENAFM.COM
  • 23. FeaturereportBErmudastock exchangeOnwards and upwardsGreg Wojciechowski of the Bermuda Stock Exchange explains howBermuda is putting a challenging year behind it, and looking forwardto expansion into the Mena region in the months aheadt he Bermudian domestic capital issuers with a combined market capitali- Going into 2011, we see several areas market and economy tend to lag sation of more than $300bn. of commercial opportunity. Of course broader macro economic trends The BSX delivers a fully electronic, we will continue to work hard in the fur- felt in the wider global financial modern stock exchange solution that ther development of our domestic capi- system. Therefore, it is no surprise supports central price discovery, cen- tal market but in addition there are somethat 2010 was a challenging year for the tral counterparty clearing and a secure exciting areas to explore. Two such areasBermudian economy, with share prices depository book entry system. The BSX for development planned for the yearand trading volumes declining as a result trades and settles daily and is used by ahead include a commitment to do-of investor cautiousness and negative fi- BSX-regulated broker dealers and finan- ing business in the Mena region, and annancial results. cial institutions. expansion into insurance-linked securi- Even during the very darkest days of The BSX has built its reputation not ties (ILS).the economic dislocation, while eco- only in terms of longevity, but also on in-nomic uncertainty prevailed, credit mar- ternationally recognised operational and Bermuda-Mena connectionkets seized, and global liquidity dried to regulatory standards. 2011 is a notable There are symmetries between Bermudaa trickle, stock exchanges never faltered year in that the exchange will celebrate and the Mena region, particularly Bah-and continued to operate – providing in- 40 years of operation and securities rain, in that both provide financial servic-vestors and capital markets with the sole trading in Bermuda. Forty years of foun- es support to high-net worth individualsbastion of liquidity. dation and success has provided the and institutions, both act as a gateway to Exchanges across the world recog- platform upon which further product larger neighbouring countries and bothnise their responsibility to their domes-tic capital markets and economies toprovide liquidity and structure even attimes of great stress. In doing so, they “The BSX has built itsensure that the fundamental principlesof stock exchange operation to provide reputation not only in termsaccess, liquidity and information flow tothe market is not interrupted thus pro- of longevity, but also onviding investors and market users witha level of comfort in the integrity of the internationally recognisedmarket mechanism and the protection operational and regulatory standards”of assets. Bermuda Stock Exchange (BSX) op-erations are predicated on these coreprinciples, despite challenging times inthe Bermudian domestic capital mar- support and services can be launched. have individual areas of expertise thatket, our international clients recognised I am particularly proud in that the BSX might be of mutual commercial benefit.the commitment of the BSX to provide is a forward-thinking, innovative opera- The governments of Bermuda and theworld-class capital market support and, tion, that constantly strives to add value Kingdom of Bahrain have stated theiras result, the BSX ended the year with a and support to the domestic and inter- desire to encourage greater economicrecord number of more than 800 listed national capital markets. ties between our countries. 224 4 24 WWW.MENAFM.COM
  • 24. greg wojciechowski President and CEO, Bermuda Stock Exchange In April 2010, Bermuda signed its first listings of hedge funds and equity de-ever Double Taxation Agreement with rivative warrants, and is build upon ourthe Kingdom of Bahrain, establishing the ILS platform.basis for greater economic co-operation ILS, and catastrophe bonds in particu-with the Gulf Cooperation Council (GCC) lar, have attracted the attention of theregion. In July 2010, a delegation of pri- BSX. This asset class is growing in inter-vate and public sector representatives est due to the low correlation betweenvisited Bahrain to begin this initiative. In the structures and the broader capitalFebruary 2011, Business Bermuda, the markets. Although a small market com-organisation charged with Bermuda’s pared to other more mature asset class-international outreach efforts, will once es, this market segment is set to expandagain be on the ground in Bahrain hold- globally and could be of considerableing a series of meetings to maintain mo- interest to professional and institutionalmentum and accelerate co-operation. investors in the Mena region. Bermuda has a lot to offer clients in the The BSX has niche expertise in thisMena region. Its regulatory reputation, area. The exchange is located within thestrategic location positioned between jurisdiction where the mind and manage-two of the deepest capital markets in ment of this industry is located. Creatingthe world, and its globally renowned in- these products sees the convergence ofsurance and financial services industry these two markets in Bermuda – this isprovide the Mena region with a variety an exciting and natural opportunity.of commercial opportunities and exper- One of our key aims for 2011, and onetise. Whether it is structuring a deal for that we have already partly achieved, isfinancing, reinsurance coverage or finan- to make Bermuda the one-stop-shopcial services support, Bermuda has the stock exchange, creating and listing theexperience, expertise and willingness to product here, as well as price discoverydevelop new commercial relationships. and exchange support. We are committed to continuing ourInnovative thinking Bermuda is the third largest special- focus on providing commercially sensi-At the BSX, we constantly analyse how ity/reinsurance market in the world and ble levels of regulation and transparency,our existing market structure can be lev- is already home to more than 1,400 as these have been the key foundationseraged for new business initiatives. The insurance entities with total assets of upon which we have built our success-BSX recently announced its intention to $442bn. Bermuda’s economy and politi- ful operation. We believe that regulationprovide listing support for Islamic finan- cal system is stable. In November 2010, should be appropriate, proportionatecial instruments such as sukuks. The BSX Fitch Ratings reaffirmed Bermuda’s and reasonable. It must foster, not stifle,offers a competitive capital market list- AA+ credit rating pointing to its strong the impetus for opportunity for these instruments on institutions, its high per capita income Our regulatory rigour and dedicationthe BSX very close to the North Ameri- and sustained current account surpluses to transparency are also two of the keycan markets. Listing a sukuk on the BSX and lower debt ratio. Bermuda is home attributes that we can offer to the Menawill provide the issuer with a ‘window on to the BSX which is an internationally region, and we are keen to stress that wethe West’. recognised stock exchange and a full have a track record in providing a solid, A very interesting and timely initia- member of the prestigious World Feder- reliable service.tive is our focus on supporting and ac- ation of Exchanges. These elements are Growth is very much the keyword forcelerating the convergence of the capi- essential to support the development of the year ahead. Aside from continuingtal markets and insurance industry in this exciting market segment. to provide support for ILS and serve ourBermuda. Bermuda is famed for solidity, listed companies and account holders, Bermuda should be seen as the natu- reliability and expertise within its insur- we are also looking to develop busi-ral choice of jurisdiction for this exciting ance industry, and has been moving ness in the Mena region, demonstratingopportunity as it is one of very few juris- towards developing Shariah-compliant in each enterprise that a small, mature,dictions that have the critical elements products including takaful and retakaful niche stock exchange like the BSX hasalready in place to support the next level in recent years. an increasing relevance in an expandingof convergence. The BSX will continue to expand the global economic framework. 2 0 5 25WWW.MENAFM.COM
  • 25. directory Fund Service ProviderS Stuart Lacey, Managing Director, email:, address: Altree Custody Services Ltd. 85 Front Street, Hamilton, HM 12 Bermuda Tel: +1 441 278 7610, Fax: +441 295 6735, email:, web: 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. Dubai: Craig Roberts, Tel: +971 4 428 9221, email: Bahrain: Nicolas Angio, Tel: +973 17 530 217, email:, web: 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. 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:, web: 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: 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. Cheryl Packwood, CEO, Tel: +1 441 292 0632, email:, Thomas Kelly, Consultant, UAE & Bahrain, Tel: UAE +97150 265 1755, Bahrain +973 3940 5960, email: 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: Fawaz Elmalki, Associate, Dubai, Tel: +9714 428 2900, email: 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: Belaid Jheengoor, Senior Manager, Tel: +1 441 299 7190 , email: 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.2 6 WWW.MENAFM.COM
  • 26. Bermuda Premier jurisdictionBERMUDA. THE JURISDICTION OF CHOICE.With long-standing, solid regulatory standards and a position oftransparency and cooperation, Bermuda has become a world-leadingjurisdiction in the financial services sector. The 21 TIEAs currentlysigned and our position as Vice Chair of the OECD Global Forum aretestament to our robust and effective regulatory policies.Bermuda is a prudent and profitable place to do business.For more information visit