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6 Canadian Int'l Law. 104 (2004-2006)
Establishing Private Equity Funds in Bermuda

handle is hein.journals/cinitnllw6 and id is 116 raw text is: Vol. 6 No. 2 CANADIAN INTERNATIONAL LAWYER 2005 Establishing Private Equity Funds in Bermuda Fawaz Elmalki* Bermuda is a key player in the glo- bal financial world with an estimated trillion US dollars under manage- ment or in trust. It is an acknowl- edged and sophisticated domicile for hundreds of offshore funds which in aggregate have net assets of more than US$133 billion. It has attracted numerous types of funds including mutual funds, hedge funds and private equity funds. Bermuda's commercial insurance and reinsurance market now ranks third in size behind only those of London and New York, and since September 11,2001 a large amount of pre-IPO private equity capital has been invested into Bermuda insurance and reinsurance compa- nies. Private equity firms have also established venture capital funds, real estate opportunity funds, mez- zanine funds and distressed asset funds, to name a few. This article considers the benefits of establish- ing a private equity fund in Ber- muda and provides an overview of the basic structures of closed-end private equity funds in Bermuda. What is a Private Equity Fund? A private equity fund is a pool of capital invested in companies that are generally not publicly traded and which aims to generate long- term capital gains to its investors over the life span of the fund, which will typically be around 10 years. A private equity fund is generally a closed-end fund, which means that the investors in the fund do not have the right to demand redemp- tion of their participating shares at net asset value at the end of a pre- determined investment period. Pri- vate equity transactions include venture capital financing to start- up companies, the injection of funding into existing businesses to help them expand, and manage- ment buyouts. Individual private equity funds sometimes focus on a specific industry, such as life sci- ences or information technology, but often broaden their scope to several industry specialisations. The size of private equity funds may vary from as little as US$25 million to billions of dollars, de- pending on the track record of the fund manager and the purpose of the fund. Legal Framework The laws of Bermuda are based substantially upon English com- mon law. Bermuda's legislation derives for a large part from a number of principal statutes from the United Kingdom, but also in- cludes original local statutes. The principal statute of Bermuda cor- porate law is the Companies Act 1981 (the Companies Act) which is de- rived from the English Companies Act 1948.' Certain provisions of the Companies Act are also derived from the Canada Business Corpora- tions Act. Etablissement de fonds d'actions privds aux Bermudes Les Bermudes servent d'abri i des centaines de fonds extraterritoriaux representant un actif global de plus de 133 milliards de $ US. Les place- ments privds en actions dans des entreprises bermudiennes ont connu une croissance appreciable ces dernieres anndes. Les facteurs avantageant les Bermudes comme juridiction de fonds d'actions privds sont multi- ples : lois fonddes sur la com- mon law, rdglementation legere mais efficace, absence de toute forme de taxation directe et une solide infrastructure. L'auteur explique brievement les principales structures de fonds d'action privds A capital fixe aux Bermudes, soit les entreprises exemptees et les socidtds en commandite sim- ple exemptdes. Ces entreprises sont le plus souvent 6tablies par des non-Bermudiens pour la conduite d'affaires 1'extdrieur de l'6conomie bermudienne. La Bermuda Monetary Authority (BMA) est l'autoritd rdglementaire principale des Bermudes et est, a ce titre, responsable de l'approbation de la propridt6 effective d'entreprises &tablies aux Bermudes. Le Registrar of Com- panies (une division du ministdre des Finances) et la BMA surveillent la constitu- tion en personne morale et l'enregistrement de toutes les 104 Canadian Bar Association/Association du Barreau canadien Vol. 6 No. 2 CANADIAN INTERNATIONAL LAWYER 2005 104 Canadian Bar Assoc iation/Association du Barreau canadien

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