1. Annual Bermuda Financial Services Conference Fund
Administration and Private Equity 30 September 2008
2. Is Perception The Reality? How Is The Hedge Fund Market
Serviced Hedge Fund Hot Topics The Bermuda Value Proposition 1 2 3
4
3. PERCEPTION VERSUS REALITY
4.
Bermuda seems to be closed for business
Bermuda is too regulated
Bermuda takes too long to establish an hedge fund, other
jurisdictions are easier
between all the third party service providers, Bermuda is too
expensive
cannot find quality good people in Bermuda
I can do everything in Cayman, which is easier for my
business
The Bermuda Perception
5. How was the Bermuda Perception Born? Aggressive Offshore
Jurisdictions seeking business US & Offshore Lawyers Investment
Managers seeking less onerous regulatory environments Global
service providers adopting the same mindset
6. The Bermuda comparison British Virgin Island Tax Neutral
environment Politically and economically stable Simple and flexible
system of regulation and control No regulatory restrictions on
investment policy or fees No requirement to appoint directors Need
to incorporate in BVI Set up and maintenance costs are low Fast
track set up Bermuda Tax Neutral environment Politically and
economically stable Reputation for robust effective regulation No
regulatory restrictions on investment policy or fees Flexibility
over the appointment of directors, secretaries and resident
representatives Need to incorporate and register in Bermuda Set up
and maintenance costs are low Fast track set up, if required Robust
AML policies Cayman Islands Tax Neutral environment Politically and
economically stable Reputation for lighter regulation No regulatory
restrictions on investment policy or fees Requirement to appoint
directors, but not local Apart from an auditor there is no
mandatory local service provision Set up and maintenance costs are
low Fast track set up
7. SERVICING THE HEDGE FUND MARKET
8. Global Segmentation of the Hedge Fund Market Source: Hedge
Fund Net
9. What can your Hedge Fund Administrator offer Incorporation
& Formation Services Domestic & Offshore Fund, Portfolio
and Partnership Accounting Services Investor & Treasury
Services Corporate Governance & Company Secretarial
Services
11. A Fully Integrated Technology Platform Fiduciary &
Directorial Services Fund, Portfolio and Partnership Accounting
Services Investor Services Company Secretarial Services
12. Fund Administrators Banks, PBs & Custodians Onshore
& Offshore Lawyers Auditors The collaborative approach?
13. Servicing every type of Investment Mandate Aggressive
Growth Distressed Securities Income Private Equity Macroeconomic
Market Neutral Opportunistic Special Situations Emerging Markets
OTC Methodologies Hedge Funds Fund of Funds Mutual Funds Pension
Funds
14. Administration Challenges in Bermuda The Administration
Challenges? Bermuda Cost Containment Managing internal expansion
Offshoring Staff Retention Immigration IT Systems
15. BERMUDA / INDUSTRY HOT TOPICS
16.
Bermuda introduces new Investment Funds Act
The Companies Amendment Act 2006
Fair Value Measurement
Guidelines for the valuation of hedge fund investments
Hedge Fund Hot Topics
17.
The Investment Funds Act 2006 came into effect on 7 March
2007
Covers the regulation and supervision of mutual fund companies,
unit trusts and limited partnerships established in Bermuda
The new legislation represents risk-based regulation that is a
key character of the Bermuda jurisdiction
No person shall operate a fund in or from Bermuda unless the
fund has been authorised under the Act or is exempt
The Act also provides a new licensing regime for fund
administrators
It is now an offense to carry on administration in or from
Bermuda without being licensed under the Act
Hedge Fund Hot Topics - Investment Funds Act -
18.
Changes in minimum share capital
There is no longer a minimum share capital requirement
Bermuda companies can now hold Treasury shares
Unrestricted corporate objectives
The Act allows a company to have unrestricted objects and
powers within its Memorandum of Association
Change in requirements for execution of documents
The unanimous requirement of written resolutions has now been
cancelled and an effective resolution can now be passed by the same
majority of voting shareholders as would be required had a physical
meeting been held
Executing deeds and documents under witnessed corporate seal is
now optional as opposed to mandatory
E-friendly initiatives
The Act has e-enabled certain filing, notice and voting
requirements helping to improve the speed and effectiveness of
corporate compliance
The voting process has been modernized whereby the Act allows
for a show of hands to be supplemented by the communication and
counting of votes received
Hedge Fund Hot Topics The Companies Amendment Act -
19.
Effective for fiscal years beginning after November 15,
2007
FAS 157 establishes a single authoritative definition of fair
value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements
Hedge Fund Hot Topics Fair Value Measurement - Hierarchy of Inputs
to Valuation Techniques Reliability Level Input Level 1 Quoted
prices in active markets for identical assets or liabilities. Level
2 Observable prices in active markets for similar assets or
liabilities. Prices for identical or similar assets or liabilities
in markets that are not active. Directly observable market inputs
for substantially the full term of the asset or liability, e.g.
interest rates and yield curves are commonly quoted intervals,
volatilities, prepayment spreads, default rates and credit spreads.
Market inputs that are not directly observable but are derived from
or corroborated by observable market data. Level 3 Unobservable
inputs based on the reporting entity's own assumptions
20.
A chief concern for investment managers of hedge funds and
those charged with the governance is the process for valuation of
complex, illiquid financial instruments such as distressed
securities, OTC structured noted and private equity
investments.
The valuation policies and practices of hedge funds should be
documented and approved by the board of Directors
The Valuation Policy should include a hierarchy of pricing
sources that are to be used.
The Valuation Policy should be regularly reviewed and updated,
as required, taking account of different scenarios.
The Board of Directors should appoint an independent Valuation
Service Provider to mitigate any conflicts of interest and to
segregate the responsibility of the valuation process with the
investment process.
Where the investment manager is involved in the valuation
process controls should be established to address conflicts of
interest and the managers involvement should be disclosed to
shareholders
The valuation of the funds portfolio should be based on
multiple pricing sources and, where broker quotations are used,
such quotations should be sourced by the independent Valuation
Service Provider
Hedge Fund Hot Topics Valuation of investments -
21. Hedge Fund Hot Topics Convergence - Gating restrictions,
strategy diversification, institutionalization, side pockets,
blurring of the lines between hedge funds, private equity and long
only funds are just a subset of the issues arising from this
transformation.
22. THE BERMUDA VALUE PROPOSITION
23. Why Bermuda ?
24. Our credibility is built on the stability, professionalism
and expertise of a large organization combined with the
flexibility, autonomy and character of a small boutique. The ISIS
Fund Services Credibility Exceptional Client Service Tailored
Services
