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  • A large market of institutional (U.S tax exempt and non-U.S. ) and high net worth investors and advisors , have not been systematically exposed to or educated about hedge funds. Continued growth in hedge funds under U.S.$100 million . Smaller funds will compete for investors’ funds and look for cost-effective ways to raise capital. Emerging markets (i.e. Pacific Rim, Latin America and Africa) a new source of capital. Investors are becoming more sophisticated, where transparency and risk management are important. No dominant financial intermediaries. , Serviced by fragmented groups of service providers around the world , which include accountants, administrators, consultants, custodians, financial intermediaries, financial information providers, lawyers, prime brokers, and private banks. independent advisors, and family offices, etc.
  • Hedge fund industry will continue to grow and evolve over $350 billion, 1.5% of global assets The internet is the next major evolution in this industry we will be at the center of that change. double digit historical growth rates, KPMG study YOU SHOULD KNOW THAT….. HedgeWorld is positioned as: catalyst for reinventing and changing the way we do business innovative enginefor future industry growth first independent Internet based community resource open e-commerce solution proprietary software facilitates relationship building MISSION
  • A large market of institutional (U.S tax exempt and non-U.S. ) and high net worth investors and advisors , have not been systematically exposed to or educated about hedge funds. Continued growth in hedge funds under U.S.$100 million . Smaller funds will compete for investors’ funds and look for cost-effective ways to raise capital. Emerging markets (i.e. Pacific Rim, Latin America and Africa) a new source of capital. Investors are becoming more sophisticated, where transparency and risk management are important. No dominant financial intermediaries. , Serviced by fragmented groups of service providers around the world , which include accountants, administrators, consultants, custodians, financial intermediaries, financial information providers, lawyers, prime brokers, and private banks. independent advisors, and family offices, etc.
  • Conservative estimates not representative of the whole market indicate 28.81% CAGR over 7 years in new funds listed and 43.60% CAGR over 4 years , in net new funds being established.
  • A large market of institutional (U.S tax exempt and non-U.S. ) and high net worth investors and advisors , have not been systematically exposed to or educated about hedge funds. Continued growth in hedge funds under U.S.$100 million . Smaller funds will compete for investors’ funds and look for cost-effective ways to raise capital. Emerging markets (i.e. Pacific Rim, Latin America and Africa) a new source of capital. Investors are becoming more sophisticated, where transparency and risk management are important. No dominant financial intermediaries. , Serviced by fragmented groups of service providers around the world , which include accountants, administrators, consultants, custodians, financial intermediaries, financial information providers, lawyers, prime brokers, and private banks. independent advisors, and family offices, etc.
  • END

Practical Uses of Bermuda Structures/Alternative Investment ... Practical Uses of Bermuda Structures/Alternative Investment ... Presentation Transcript

    • Practical Uses of Bermuda Structures/Alternative Investment Vehicles
    Bermuda: The Future of Offshore, Today London, January 22, 2001
  • Practical Uses of Bermuda Structures / Alternative Investment Vehicles
    • Moderator: The Hon. C. Eugene Cox, JP, MP
    • Deputy Premier and Minister of Finance
    • Greg Haycock
    • Martin Lane
    • Fergus Healy
    • Johann Wong
    London, January 22, 2001
  • Greg Haycock Partner KPMG Bermuda
  • THE SEGREGATED ACCOUNTS COMPANIES ACT 2000 and ANTI-MONEY LAUNDERING AND THE PROCEEDS OF CRIME ACT
  • Overview
    • The new public registration system for creating protected client “cells” in any industry:
      • quickly
      • inexpensively
  • Advantages
    • Less Expensive
    • More Manageable
    • Establishes substantive law
  • Substance of Relationships
    • Nature of a trust
    • Created by way of mandated agreement
  • Benefits
    • International recognition and enforceability
    • Enhances Bermuda’s reputation
    • Establishes a system of registration
    • Sets prescribed standards
    • Improves Bermuda’s competitiveness
  • Business Opportunities
    • Applies to non-insurance as well as insurance uses
    • Promotes tailor-made solutions
  • Non-Insurance Uses
    • Mutual fund structures
    • Property development companies
    • E-commerce companies
    • Ship and aircraft companies
    • Securitisation and derivative transactions
    • Trust company arrangements
  • Summary of the Act
    • Establishes system of public voluntary registration
    • Creates statutory regime governing record keeping
    • Incorporates principles of U.S. business trust legislation
  • Requirements
    • Available to companies governed by the Companies Act
    • No restrictions on insurance company applications
    • Other companies must seek approval of Minister
    • Company name must include “(SAC)”
  • Crucial Aspects
    • Attributes portions of an asset/liability
    • Allows for amalgamation or consolidation
    • Any type of securities
    • Sets conditions for dividends or distributions
  • Competitive Fees
    • Annual fee of $250 per segregated account
    • Maximum annual fee of $1,000
  • Determining Solvency of SAC
    • Cells or Segregated Accounts
    • General Account
  • Cells or Segregated Accounts
    • Separate accounts for each cell
    • Each with assets and liabilities
    • Subject to any abatement provisions
  • General Account
    • One set of accounts
    • Assets and Liabilities
  • Illustration of SAC, General Account and Segregated Account Cells
  • Conclusion
    • Bermuda at the forefront International recognition
    • Responsible legislation
    • Suited to a wide range of business uses
    • Assists development of offshore sector
  • Anti-Money Laundering and the Proceeds of Crime Act
  • Historical Perspective
    • 1940 Defense Finance Regulations
    • 1972 Exchange Control Act
    • 1997 Proceeds of Crime Act
    • 1999 Proceeds of Crime Amendment Act
  • “ Know your Customer” Initiative
    • 1988
      • Vienna Convention
    • 1991
      • BMA issues Anti-Money Laundering Code
    • 1995
      • UK officially declares to UN Vienna Convention applies to Bermuda
      • Code of Conduct updated and reissued
      • formerly adopted by all financial institutions, other than CIS
  • Proceeds of Crime Act, 1997
    • Crimilized the laundering of proceeds of criminal conduct including;
      • concealing or transferring proceeds
      • assisting another to retain proceeds
      • acquisition, possession or use of proceeds
      • failure to disclose knowledge or suspicion
      • tipping off third parties under investigation
  • Criminal Conduct
    • Schedule of “relevant offences” includes offences which;
      • result in significant monetary gain
        • corruption, fraud, counter-fitting, stealing and/or forgery
      • “ dual criminality”
        • an act or omission which would constitute drug trafficking or a relevant offence had it occurred in Bermuda.
  • Proceeds of Crime Money Laundering Regulations, 1998
    • Provides that banks, trusts, deposit companies and other categories are regulated institutions and must observe the rules
    • Regulated institutions required to establish & maintain procedures concerning;
      • client identification
      • record keeping
      • internal reporting
      • training
      • appointment of compliance officer
  • Proceeds of Crime Amendment Act, 1998
    • Changes definition of relevant offences under ‘criminal conduct’ to mean all indictable offences.
    • Criminal Tax Evasion - only indictable tax offence in Bermuda
    • “ any willful act by a person with intent to defraud and where (a) the person knows a substantial amount of tax would otherwise be due (b) the conduct involved constitutes a systematic effort or pattern of activity designed to falsify material records
    • Martin Lane
    • Managing Director
    • Conyers Dill & Pearman
    • London
  • The Legislative Framework for Collective Investment Schemes in Bermuda
  • Current Legislative Framework
    • The Companies Act 1981
    • The Bermuda Monetary Authority
      • Collective Investment Scheme Classification Regulations 1998
  • The Companies Act 1981
    • Allows Redemption
    • Prospectus Requirements
  • BMA (CIS) Regs
    • Bermuda Standard Scheme
    • Bermuda Institutional Scheme
    • Bermuda Recognised Scheme
  • Bermuda Standard Scheme
    • Local (Bermuda) bank custodian - usually
    • Local (Bermuda) registrar
    • BMA approval of other functionaries
  • Bermuda Institutional Scheme
    • No requirement for Bermuda custodian
      • minimum subscription $100,000
      • initial offering size $50m
  • Bermuda Institutional Scheme
    • Administrator must
      • have a physical presence in Bermuda
      • be independent of the scheme and other functionaries
    • Warning language - regulated to a lesser degree
  • Establishing a Mutual Fund
    • Incorporation by registration
      • application to BMA
    • BMA to approve offering materials
    • Prospectus filed if public offering
  • Officers or Representatives
    • Two Resident Directors
    • One Resident Director and a Resident Secretary
    • Resident Representative and a Resident Secretary
  • On-going Reporting Requirements
    • Declaration filed annually with fees
    • Monthly statistical report
    • Prospectus - refiling on material changes
  • Recent Changes
    • Minimum capital lowered
    • No annual prospectus refiling
  • Future Proposals?
  • Fergus Healy Vice President Bank of Bermuda
  • Substance to Investment Fund Business In Bermuda
    • Bermuda is in an almost unique position in the offshore world as many facets of the investment management industry have a substantial presence on the island.
    • Leading jurisdiction for the incorporation, management and administration of investment funds of all types and the provision of custody services.
    • 1,339 open ended funds constituted in Bermuda with nearly $40 billion in assets as at 30th June 2000.
  • Very Good Infrastructure
    • Excellent telecommunication network
    • E-commerce hub
    • Regular flights to the US, London and Canada
    • Safe, stable economic and political environment
    • Excellent accounting, legal and technical professional support services
  • Strong but Flexible Regulation
    • Bermuda Monetary Authority (“BMA”) has a sound track record for prudent regulation
    • Excellent working relationship/partnership between government and industry
    • Bermuda is not on the FATF or OECD “blacklists” due to strong “Know your Customer “requirements.
    • KPMG recognized Bermuda’s strong regulatory environment in its Review of Financial Regulation in the Caribbean Overseas Territories and Bermuda for the UK Government.
    • Pending Licensing of Fund Administrators
  • Experience with Different Fund Structures
    • Hedge Funds
      • Equalization
      • Series Accounting
      • Hot Issues
      • Electronic links to Brokers
      • Huge growth in European based sponsors
    • Fund of Funds
      • Very popular in 2000
      • Allow investors to be exposed to a number of hedge funds
      • Seeing a trend for lower minimums
      • Many large custodian do not want the custody side of the buisness
  • Experience with Different Fund Structures
    • Private Equity Funds
      • A large number of Private Equity Funds have been set up in the last three years in Bermuda by European Managers
      • Very unique accounting requirements
      • Bermuda has built up an expertise in the administration and auditing of Private
    • Equity Funds
      • Emerging Market Funds
      • Seeing a revival after September ‘98
    • Structured Trusts
      • Can be very effectively used for some commercial transactions
  • Expertise in Administration
    • Many well respected administrators in Bermuda
    • Ability to service funds from many jurisdictions
    • State of the art systems
    • Exposure to developments in many jurisdictions
    • And most importantly . . . . . . . . . for the fund sponsor
  • A Great Place for Board Meetings!
  • “ QI” Status
    • Bermuda recognized as an approved jurisdiction
    • Benefit the custody business but also the unit trust business
    • QI’s who are non-US Custodians and Trustees - No disclosure of client details to IRS
  • Removal of “Ten Commandments”
    • Has not had the drastic impact some thought
    • Expertise, cost effectiveness and flexibility
    • Many investors still look to a 3rd party administrator for comfort
    • Provided opportunity for many of Bermuda’s administrators to move some of their operations on-shore
    • Opens up new market - domestic U.S. Hedge fund market
  • Summary
    • Bermuda has a substantial multi-faceted investment management industry.
    • Fund administration is major component of the investment management industry.
    • Bermuda’s Administrators are among the leading off-shore fund administrators in the world.
    • The BMA enforces a strong but flexible regulatory regime.
    • Bermuda’s continues to take steps to protect its good reputation.
  • Bank of Bermuda Contacts
  • Johann Wong President & Founder HedgeWorld Ltd.
  • Alternative Investments E-Commerce Risk Transfer
    • “ All Good Things Converge In Bermuda”
    • Bermuda is the premium offshore jurisdiction where alternative investments, risk transfer and electronic commerce converge to offer a seamless solution for businesses
    Bermuda: The Convergence Island
  • Bermuda: The New New Thing
    • Innovative building blocks, include:
      • Seamless Solution - accounting, administration, banking, capital markets, custody, insurance, Internet infrastructure, legal...
      • Rule of Law - Electronic Transaction Act, 2000 and Investment Business Act, 1998 and respective Code of Conducts...
      • Estimated $10 billion + in reporting hedge funds domiciled and/or custodied in Bermuda (TASS+)…
      • PlusMarkets joint-venture with the BSX and Plusfunds.com
      • HedgeWorld.com, HedgeTrust Exchange and the BSX...
      • Annual MAR/Hedge industry conference…
      • Estimated $84 billion in total assets and $23.4 billion in capital in insurance companies (Deloitte & Touche 12/31/99), 1,500 insurance companies
      • XL Capital, MaxRe, Imagine, Tremont Insurance...
  • www.bermudaconvergence.com
  • Regulatory Overview & Links
    • Bermuda International Business Association
    • Bermuda Monetary Authority
    • Bermuda Stock Exchange - FIBV, IOSCO Member
    • Insurance Advisory committee
    • IRS Qualified Intermediary - Bermuda is Qualified
    • KPMG Report - Recognized jurisdiction
    • OECD - FATF - Not on any black lists
    • U.S. Treasury Advisory - Not on black lists
  • Fact Sheets
    • The Convergence Island
    • Why Bermuda Mean Business
    • Financial Services
    • Hedge Funds
    • Mutual Funds
    • Insurance Industry
    • E-Commerce Legislation
    • E-Business Solution
  • Case Studies
    • DotRisk.com - insurance site
    • HedgeWorld.com - hedge fund B2B infrastructure solution
    • Imagine Re - reinsurance wrapped around hedge funds
    • Invesdex - online alternative investments index
    • Max Re - reinsurance wrapped around hedge funds
    • PlusMarkets - online trading of hedge funds with BSX
    • Principal Guaranteed: ACE, XL, Zurich - insurance-based principal guarantee of hedge funds products
    • Tremont International Insurance Ltd. - insurance and annuities wrapped around hedge funds
  • “ Hedge Fund” Insurance Companies Widely Held Moore Capital Fixed Income AlternativeAssets Portfolio, Managed by Moore Capital Life and P&C Reinsurance (Low Volatility) $500 million MAX RE * First class insurance management team * Class 4 licence $350 million $150 million 60% 40% TOTAL ASSETS NOTES : Not a PFIC or CFC Tax Free Income Roll-Up Leverage Using Premium Flow IPO Likely-Multiple
  • Principal Return Guarantee INVESTORS TRUSTEE ASSETS CUSTODIAN/ TRUSTEE COLLECTIVE INVESTMENT SCHEME
    • NOTES :
    • - Wider Investor Pool
    • - Effective use of Capital
    • - Insurer looks for:
      • liquidity
      • track record
      • transparency
      • ability to understand risks
      • control
    • - Costs
    INSURER MANAGER GUARANTEE PRINCIPAL RETURN AT MATURITY CAPITAL REPORTS TO MANAGEMENT CONTRACT HELD BY CUSTODY AGREEMENT
  • Where is the opportunity?
    • Estimated 3,000 to 5,000 hedge funds, U.S./non-U.S.
    • Estimate US$300-500 billion in assets, U.S./non-U.S.
    • Estimated 25%+ growth rate, new assets received
    • Estimated to grow to trillion U.S. dollars in 5 years
    • Institutions and their consultants
    • High net worth investors and financial service providers
    • Growth in hedge funds under US$100M
    • Transparency and risk management
    Global Hedge Fund Industry
  • Hedge Fund Industry Trends
    • Traditional to alternative manager brain drain
    • Inherent supply side constraints increasing
    • Emergence of a “elite” class of hedge funds
    • Fee discounts on unproven managers
    • Demand for hedge fund transparency increasing
    • Demand for hedge fund increasing with knowledge
    • Financial institutions outsourcing to hedge funds
    • Hedge funds are moving down market to affluent investors
  • Hedge Fund Industry Trends (cont.)
    • Capacity will increase with institutionalization
    • Liquidity is decreasing
    • Structured products are increasing
    • Lenders consolidating credit and trading risk
    • Managers want stickier funds
    • Regulatory reform focusing on creditors
    • Managers becoming more marketing-orientated
  • Great Performance... Source: Tremont Advisers, Inc.
  • Superior Rewards vs. Risk (1986-1995) Cottier, Philip, Hedge Funds and Managed Futures, University of St. Gallen, Verlag Paul Haupt, Bern, 1997
  • Creates Strong Hedge Fund Growth E E E E E E E E E Tremont Advisers, HedgeWorld.com, Dr. Rama Rao and Jerry J. Szilagyi, The Coming Evolution of the Hedge Fund Industry, RR Capital Management, 1998
  • Stronger Growth Offshore... Source: U.S. Offshore Funds Directory
  • # of Mutual Funds vs. Hedge Funds Investment Company Institute & TASS Investment Research E E E
  • Assets of Mutual vs. Hedge Funds $ billions. Investment Company Institute & TASS Investment Research E E E
  • Hedge Fund Investor Profile
    • High-net-worth families
    • Swiss private banks
    • U.S. endowments/foundations
    • Institutional Structured notes
    • Insurance companies
    60% -75% 40% - 25% TASS Research Investment Research
  • Allocations to Hedge Funds RRCM & KPMG, 1998
  • Hedge Fund Opportunities for Investors
    • 68.9% - Will be more available to less wealthy investors
    • 68.2% - Only the rich get to invest
    • 64.8% - Best investment managers run hedge funds
    • 63.7% - Everyone should be able to invest
    • 62.2% - Would invest if opportunity arose
    • 57.3% - Good way to create a diversified portfolio
    N = 267, emerging wealth investors ($100,000 or more) High-Net-Worth Psychology: Finding, Winning and Keeping Affluent Investors, Prince & Associates
  • Pension Plans Alternative Investments Greenwich Associates
  • U.S. Institutional Investors Demand Greenwich Associates
  • Bermuda: The Convergence Island
    • Seamless Solution -
      • Alternative Investments, Risk Transfer and E-Commerce
      • Business friendly environment and stable economy
      • Accounting, Administration, Banking, Custody, Financial Services, Insurance, Internet, Legal
      • Rule of Law - Electronic Transaction Act
      • US$10 billion from over 120 hedge funds
      • US$30 billion from over 1,000 mutual funds
      • US$100 billion assets from over 1,500 + insurance companies
      • Proven case studies - ACE, DotRisk.com, Hedgeworld.com, Imagine, Invesdex, MaxRe, PlusMarkets, Tremont International Insurance Ltd., XL, Zurich
    All Good Things Converge In Bermuda
  • The Convergence Island All Good Things Converge In Bermuda