Bermuda’s flexibility and ease of use for the creation and administration of investment funds is well recognised. As one of the world’s leading offshore jurisdictions, it is a premier domicile for private equity groups. Neil Henderson of Conyers’ Bermuda office and Peter Ch’ng of Conyers’ Hong Kong office discuss the advantages of Bermuda for PE funds in traditional sponsor jurisdictions as well as new markets in Asia.
How popular is Bermuda as a domicile for PE funds?
NH: Bermuda has been a top choice for PE funds for many years. The figures speak for themselves – almost all of top US and European Private Equity (PE) groups have either domiciled structures in Bermuda or have interests in Bermuda funds.
PC: From an Asian perspective, it is surprising given Bermuda’s lineage as a premier financial offshore centre that it has not made more of an impact in the private equity or fund management industry in Asia. Bermuda’s reputation has traditionally attracted blue-chip PE sponsors from North America and Europe. With recent changes to its limited partnership laws and the introduction of limited liability companies (LLCs) as well as the lowering of government fees in line with competing jurisdictions, Bermuda is in some ways a hidden treasure awaiting greater discovery in Asia.
NH: Bermuda has demonstrated its commitment to developing the PE space. For instance, industry has partnered with the Bermuda government on a number of legislative initiatives in recent years to keep the PE product competitive while the Bermuda Business Development Agency (BDA) offers a ‘concierge service’ to new businesses intending to invest in Bermuda. The BDA serves as a primary point of contact to help businesses with their legal and regulatory obligations, liaising with the BMA and making introductions to key contacts in the Bermuda business community.
What form of vehicle is typically used for Bermuda PE funds?
PC: A Bermuda exempted limited partnership is comprised of at least one general partner (usually a Bermuda exempted company or LLC) and at least one limited partner. Although exempted limited partnerships are typical, there are other options to consider, depending on the type of investors targeted and the investment approach. Bermuda LLCs, segregated accounts companies and unit trusts may be more appropriate in certain circumstances and markets. They are all flexible structures and easy to set up. For example, unit trusts are historically attractive to Asia-based sponsors and investors, owing to prevalence and “pass through” tax transparency treatment at the fund and investor level.
NH: As Peter noted, in most cases Bermuda PE funds are formed as close-ended exempted limited partnerships. While Bermuda limited partnership law has its roots in English partnership legislation, it is also directly comparable with its Delaware counterpart, so the typical structure with a limited partnership and a corporate general partner is particularly popular with private equity fund sponsors in the United States targeting global investors.
Looking at other vehicles, what are the advantages of a segregated account company?
PC: Bermuda segregated account companies (SACs) may be employed to pursue multi-pronged investment strategies where assets and liabilities of one account are ring-fenced from those of other segregated accounts of the same company. SACs are attractive because they can achieve such separation within one vehicle and so avoid the expense of incorporating separate companies in order to achieve the same effect. They can be used to establish a number of single investor portfolios designed to meet an investor’s specific needs and without having to disclose the details of such portfolios to other investors in the SAC. Admittedly, these structures are much less common, perhaps partly because of the uncertainty of tax treatment given the relative novelty of the structures in the industry.