The international fund class is being reformed to be more flexible, allowing more schemes to use the structure
Bermuda is in the process of updating its protected cell legislation and its institutional fund structure in an attempt to bolster the fund management industry.
The institutional fund class, which has been a bit of a disappointment so far, will be changed this summer to allow more schemes to use the structure. Previously there were impractical limitations, for example, there was a $50m minimum size. But many funds start smaller than that and have opted for a Bermuda Standard Scheme, even when the institutional scheme would be more appropriate.
William Woods, CEO of the Bermuda Stock Exchange, said: 'There will be some tidying up to make the institutional scheme structure more flexible and coherent.'
The only people who can invest in these schemes are accredited investors: investors with $1m net assets, $200,000 per year salary or $300,000 with spouse. Institutions are being consulted now and the new legislation should be out in October or November.
There will also be modifications to Segregated Account Company legislation, a fund structure introduced in 2000, which is very much like the Protected Cell Company in Guernsey on which it was largely modelled.
'But we think we have a much better mousetrap than Guernsey,' added Woods.
Instead of having umbrella companies with share classes, this structure means fund sponsors can have a company with lots of cells without any cross liability. Previously it was aimed at insurance companies. Now they will tweak it to make it practical for funds to be set up using the structure. The legislation will be redesigned over the summer and be introduced in the autumn.
Woods said: 'The legislation will be massaged. It is not a root and branch change.'
Bermuda has an ongoing process of review of legislation to see how it is working. For example, the Companies Act takes recommendations every year for changes. Bermuda has big plans to promote itself as an e-commerce centre and has had some success. In 1999, the Electronic Transactions act was passed. There is a regulatory review underway which will mandate the licensing of fund administrators in the same way that managers are licensed now. The Bermuda Monetary Authority wants to see that managers have some experience and are able to demonstrate other funds managed over time.
Out of 350 listings on the Bermuda Stock Exchange (BSX), there are 270 funds. There are 19 international companies who typically want a secondary listing in Bermuda because they have corporate headquarters there. There is also a Mezzanine market which is for companies to raise venture capital without going fully public.
'The mezzanine market is between a private company and a full public listing,' said Woods. 'It's not like AIM or the Neuermarkt because there is no IPO.'
The only people who are allowed to invest are 'qualified investors'. Woods continued: 'There are 13 mezzanine companies. If you are a private company, you have no profile whatsoever. If you are public you have a very high profile, but you have to give a great deal of information. This gives the best of both worlds.'
The idea is that the company can then IPO when it is ready.
Plusfunds, the secondary market for hedge funds listed on the Bermuda Stock Exchange, is making slow progress in attracting listings.
Among the reasons why, it seems that investors do not care to have daily valuations or to trade these funds aggressively. Instead there is demand for accurate information and analytics, which they are happy to get on a monthly basis. BSX lists 17 Plusfunds funds, but also 10 hedge funds in addition. The main focus is on funds with $100,000 minimum or above.
In a separate development, the industry is set to get further cash injections, as there are more applying to get an exclusion from the 40/60 rule, which severely restricts the ownership of Bermuda companies by foreign businesses. Application for exclusion was only recently allowed.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress