Bermuda: Alternative Investment Funds 2019

Last Updated: 20 August 2019
Article by Sarah Demerling and Nathalie West
Most Popular Article in Bermuda, September 2019

1 Regulatory Framework

1.1 What legislation governs the establishment and operation of Alternative Investment Funds?

The establishment and operation of investment funds in Bermuda ("investment funds" or "funds") is governed by:

  • the Companies Act 1981 (the "Companies Act");
  • the Investment Funds Act 2006 (the "IFA");
  • the Fund Prospectus Rules 2007 (the "Fund Prospectus Rules"); and
  • the Fund Rules 2007 (collectively with the Fund Prospectus Rules, the "Fund Rules").

The Bermuda Monetary Authority (the "BMA") is the principal body responsible for the regulation of investment funds, including those listed on the Bermuda Stock Exchange.

Investment funds in Bermuda may be structured and organised under Bermuda law in the following ways:

  1. a company registered under the Companies Act and stated to be a mutual fund ("mutual fund company");
  2. a mutual fund company that is a closed-ended fund ("ClosedEnded Fund");
  3. a unit trust scheme;
  4. a limited partnership; and
  5. a limited liability company ("LLC")

An investment fund is defined in the IFA to include any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income. The IFA only applies to those arrangements where investors are entitled to have their shares/units/interests redeemed in accordance with the fund's constitution and prospectus at a price determined in accordance with such constitution and prospectus. The IFA therefore does not currently apply to Closed-Ended Funds, being funds whose investors do not have the right to redeem at their own option.

Mutual fund companies, unit trust funds, partnerships funds and LLCs in Bermuda (collectively "Open-Ended Funds") are all governed by the IFA and, in the case of a "standard fund", the Fund Rules. The IFA and the Fund Rules are not currently applicable to Closed-Ended Funds.

1.2 Are managers or advisers to Alternative Investment Funds required to be licensed, authorised or regulated by a regulatory body?

The Investment Business Act 2003 (the "IBA") governs the regulation of "investment business" (described below) in Bermuda. Pursuant to the IBA, managers and advisors can be organised anywhere and act as managers and advisors to all forms of funds. There is no requirement for a manager or adviser to be licensed in Bermuda unless they have physical premises and employees in Bermuda. All managers and advisors of authorised, professional and private funds (as described below), however, will be required to act in accordance with the IFA in all dealings concerning the fund. The BMA will evaluate whether the manager is a fit and proper person and will take into account the manager's experience and expertise in relation to the fund.

The Economic Substance Act 2018, as amended (the "Economic Substance Act") which became operative on 31 December 2018 introduced economic substance requirements for any 'relevant entity' (being: a company incorporated or registered under the Companies Act, including a permit company and an overseas company; a Bermuda LLC and a Bermuda exempted partnership, exempted limited partnership or overseas partnership that has elected to have separate legal personality in accordance with section 4A of the Partnership Act, 1902) that is engaged in a "relevant activity" which includes "fund management". This does not apply to a "nonresident entity" which is resident for tax purposes in a jurisdiction outside Bermuda that is not on the EU "black list".

Assuming that a relevant entity is carrying out the business of "fund management", it must satisfy Bermuda economic substance requirements as set out in section 3 of the Economic Substance Act and regulation 3 of the Economic Substance Regulations 2018 (as amended).

At the time of writing, carrying on the business of a fund is not a relevant activity.

The Minister of Finance of Bermuda has issued guidance on general principles with respect to the economic substance requirements, including reporting requirements. Sector-specific guidance, including guidance in relation to the relevant activity of fund management is expected to be issued later in 2019.

Therefore, further clarification and interpretation of the Bermuda economic substance requirements may be contained in such guidance and in any further amendments to the legislation promulgated under the Bermuda Economic Substance Act.

For managers physically domiciled in Bermuda, there are exemptions available from the licensing regime if they fall within the scope of the Investment Business (Exemptions) Order 2004 (the "Exemption Order") further described below.

"Investment business" services are very broadly defined and include dealing in investments, arranging deals in investments, managing investments, providing investment advice and safeguarding and administering investments. To be deemed to be carrying on investment business "in or from" Bermuda, a person must carry on investment business from a place of business maintained by such person in Bermuda with employees. Therefore, unless the manager maintains an office in Bermuda with employees or has an arrangement that the Minister of Finance by order determines will constitute the carrying on of business in Bermuda, the IBA will not apply.

Under the Exemption Order, a person (not being a "market intermediary" (described below)) carrying on investment business shall be exempt from the requirement to obtain a licence under the IBA where such person provides investment business services exclusively to:

  1. a high-income private investor: an individual who has had a personal income in the last two years in excess of US$200,000 in each of the two years preceding the current year or has had a joint income with that person's spouse in excess of US$300,000 in each of those years, and has a reasonable expectation of reaching the same income in the current year; current year meaning the year in which he or she purchases an investment;
  2. a high-net-worth private investor: an individual whose net worth or joint net worth with that person's spouse in the year in which he or she purchases an investment exceeds US$1 million; "net worth" meaning the excess of total assets at fair market value over total liabilities;
  3. a sophisticated private investor: an individual who has such knowledge of, and experience in, financial and business matters as would enable him or her to properly evaluate the merits and risks of a prospective purchase of an investment, and who, in respect of each investment transaction, deals in amounts of not less than US$100,000;
  4. collective investment schemes approved by the BMA under the IFA (or any provision of law amending or replacing the IFA), and includes collective investment schemes established or registered outside Bermuda;
  5. bodies corporate, each of which has total assets of not less than US$5 million where such assets are held solely by the body corporate, or held partly by the body corporate and partly by one or more members of a group of which it is a member;
  6. unincorporated associations, partnerships or trusts, each of which has total assets of not less than US$5 million where such assets are held solely by such association, partnership or trust or held partly by it and partly by one or more members of a group of which it is a member;
  7. bodies corporate, all of whose shareholders fall within one or more of the categories of this list, except category (iv);
  8. partnerships, all of whose members fall within one or more of the categories of this list, except category (iv); or
  9. trusts, all of whose beneficiaries fall within one or more of the categories of this list, except category (iv).

A "market intermediary" is defined as "a person who engages or holds himself out as engaging in the business of dealing in investments as principal or agent on an investment exchange".

Persons who provide investment services to not more than 20 persons at any time, and do not provide investment services to the public are also exempt from the IBA licensing requirement.

Fund administrators are required to obtain a licence under the IFA to carry on the business of a fund administrator in or from Bermuda. It should be noted that only certain classes of authorised funds require a Bermuda licensed fund administrator (see question 1.3).

Incentives are currently being offered by the Bermuda Government to attract asset managers to domicile in Bermuda, such as:

  • new business work permits: new companies to Bermuda will receive up to five work permits for senior positions;
  • no term limits (that is, restrictions on the length of time an employee may stay in Bermuda);
  • reduced fees on the purchase of qualified property for expatriates;
  • key executive exemptions from work permit requirements and the opportunity for these individuals to eventually receive long-term residency for themselves, their spouse and their children; and
  • payroll tax holidays for employers who hire Bermudians to new positions.

To viewthe full article click here

Originally Publish by ICLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Genshape Management Limited
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Genshape Management Limited
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions