Comparison of Bermuda, Cayman Islands and British Virgin Islands Funds

Comparison of Bermuda, Cayman Islands and British Virgin Islands Funds

Preface This publication has been prepared for the assistance of those who are considering the formation of a fund in an offshore jurisdiction such as Bermuda, the British Virgin Islands ( BVI ) or the Cayman Islands ( Cayman ). This publication deals in broad terms with the requirements of each jurisdiction for the establishment and operation of a fund. It is not intended to be exhaustive, but merely to provide brief details and information, which, we hope, will be of use to our clients. We have separate publications dealing with each jurisdiction, which can be provided upon request. We recommend that our clients seek legal advice in relation to each jurisdiction on their specific proposals before taking steps to implement them. Before proceeding with the incorporation of a fund in any of the jurisdictions, persons are advised to consult their tax, legal and other professional advisors in their respective jurisdiction. Conyers Dill & Pearman Page 2 of 14

TABLE OF CONTENTS 1. INTRODUCTION 2. FUND VEHICLES 3. FUND CATEGORIES: UNRELATED 4. FUND CATEGORIES: REGISTERED 5. FUND CATEGORIES: REGULATED 6. ESTABLISHMENT PROCEDURE 7. ORGANISATION COSTS 8. UNIT TRUSTS 9. LIMITED PARTNERSHIPS 10. PROSPECTUSES 11. FUNCTIONARIES 12. ANTI-MONEY LAUNDERING AND TERRORIST FINANCING 13. REPORTING REQUIREMENTS 14. REPORTING REQUIREMENTS: FINANCIAL 15. LOCAL REQUIREMENTS: COMPANIES 16. MANAGEMENT: COMPANIES Page 3 of 14

1. INTRODUCTION As the establishment of investment funds, mutual funds and hedge funds in offshore jurisdictions continues to grow, it is becoming increasingly important to understand the advantages offered by each jurisdiction. Conyers Dill & Pearman has offices in each of Bermuda, the BVI and Cayman and is able to advise on the establishment of funds in each of these three jurisdictions. The purpose of this comparison is to help our clients identify which jurisdiction best suits their legal and commercial requirements. 2. FUND VEHICLES A fund may be a company, segregated accounts company, limited liability company, unit trust or limited partnership. A fund may be a company, segregated portfolio company, limited liability company, unit trust or partnership. A fund may be a business company, segregated portfolio company, unit trust, partnership or other body. 3. FUND CATEGORIES: UNREGULATED 1. Unregulated Funds E.g. private funds/excluded funds including master funds with less than 20 investors and which do not promote themselves to the public generally. (No requirement that investors be able to remove fund operator(s) (i.e. directors, general partner or trustee as applicable)) E.g. closed-ended funds such as private equity funds which are not subject to the provisions of the IFA (defined below) No filing fees for Master Funds or other authorization expenses if such Master Fund has less than 20 registered investors. Application fee: zero 4. FUND CATEGORIES: REGISTERED Legislation: Investment Funds Act 2006 (the IFA ) 1. Unregulated Funds E.g. private funds set up for a max. of 15 investors and the majority of investors (whether voting or non voting) can appoint and remove fund operator(s) (i.e. directors, general partner or trustee as applicable) (exemption from licensing and registration not available for Master Funds (see below)) E.g. closed-ended funds such as private equity funds and certain overseas funds Application fee: zero Legislation: The Mutual Funds Law (2015 Revision) (the Law ) 1. Unregulated Funds E.g. closed-ended funds such as private equity funds Application fee: zero Legislation: Securities and Investment Business Act ( SIBA ) 1. Class A Exempt Funds Open to qualified participants (e.g. sophisticated investors) and investment managers with certain qualifications (see below). No regulatory approval required; filing only. Application Fee: US$1,545 Annual Fee: US$1,545 1. Registered Funds Set up for min. investment of US$100,000 or interests listed on a recognised stock exchange. Application Fee: CI$3,500/US$4,270 Annual Fee: CI$3,500/US$4,270 1. Incubator Funds Set up for max. of 20 investors, each of which must invest at least US$20,000 Application Fee for Approval: US$1,500 Annual Renewal Fee: US$1,000 2. Approved Funds Set up for up to 20 investors. Net assets under management must Page 4 of 14

2. Class B Exempt Funds Only open to qualified participants. Application Fee: US$1,030 Annual Fee: US$1,030 not exceed US$20 million. Application Fee for Approval: US$1,500 Annual Renewal Fee: US$1,000 3. Private Funds Set up for max. of 50 investors or interests offered on private basis only. Application Fee for Recognition: US$700 Initial Fee on Recognition: US$1,000 (on or before June 30 in any year; US$500 thereafter) Annual Renewal Fee: US$1,000 5. FUND CATEGORIES: REGULATED Legislation: Investment Funds Act 2006 (the IFA ) Legislation: The Mutual Funds Law (2015 Revision) (the Law ) Legislation: Securities and Investment Business Act ( SIBA ) 1. Institutional Funds Only open to qualified participants or set up for min. investment of $100,000. Application Fee: US$855 Annual Fee: US$968 2. Standard Funds Generally retail funds All other funds not otherwise classified or exempted/excluded. Application Fee: US$855 Annual Fee: US$1,535 3. Administered Funds Requires the appointment of a fund administrator recognized by the Bermuda Monetary Authority ( BMA ) and either (i) a minimum investment of US$50,000; or (ii) fund interests listed on a BMA recognised stock exchange. IFA licensed administrator. Application Fee: US$855 Annual Fee: US$968 Specified Jurisdiction Funds (Japan) Recognised to be marketed to the Japanese public. Based on a Standard Fund structure 1. Administered Funds Licensed Cayman administrator appointed to provide principal office. Application Fee: CI$3,500/US$4,270 Annual Fee: CI$3,500/US$4,270 2. Licensed Funds Licensed as a regulated fund by the Cayman Islands Monetary Authority ( CIMA ). Application Fee: CI$3,500/US$4,270 Annual Fee: CI$3,500/US$4,270 Master Funds Has one or more regulated feeder funds (i.e. mutual funds that conduct more than 51% of their investing through another mutual 1. Professional Funds Only open to professional investors and set up for min. investment of $100,000 (unless an exempted investor i.e. the manager, promoter and their employees, the administrator or the underwriter). Application Fee for Recognition: US$700 Initial Fee on Recognition: US$1,000 (on or before June 30 in any year; US$500 thereafter) Annual Renewal Fee: US$1,000 2. Public Fund (business company or unit trust) May offer interests to the public in accordance with SIBA. Application Fee for Registration: US$700 Initial Fee on Registration: US$1,500 (on or before June 30 in any year; US$750 thereafter) Annual Renewal Fee: $1,500 Recognised Foreign Funds Overseas funds already regulated and supervised by an FSC (Financial Services Commission) approved jurisdiction may be recognised in Page 5 of 14

Application Fee: US$855 Annual Fee: US$1,535 6. ESTABLISHMENT PROCEDURE Filing to incorporate made with the Registrar of Companies. Incorporation can generally be completed within 24-48 hours after collection of due diligence documentation. Bye-laws, prospectus and agreements must be finalised before launch. Registered Funds: (1) Class A Exempt Funds: Filing with BMA of a confirmation of eligibility certificate and offering memorandum. No further approvals or requirements. (2) Class B Exempt Funds: Filing with BMA of an offering memorandum. BMA approval of exemption must be obtained before launch (approx. 5 days). Regulated Funds: BMA approval of authorisation and appointment of service providers must be obtained before launch (approx. 5 days) 7. ORGANISATION COSTS* Incorporation Cost 1 : US$2,510 (including filing fee and first year annual government fee) Annual Gov Fee: US$2,095 for companies with an authorized share capital of US$12,000 fund). Application Fee: CI$2,500/US$3,050 Annual Fee: CI$2,500/US$3,050 Filing for incorporation made to Registrar of Companies. Incorporation can generally be completed within 24-48 hours after collection of due diligence documentation. Articles of association, prospectus and agreements must be finalised before CIMA filing and launch. Registered and Regulated Funds: CIMA will generally confirm approval of registration within 5 days. Incorporation Cost 3 : US$1,585 (including filing fee and first year annual gov fee) Annual Gov Fee: US$854 for companies with authorised capital of up to US$50,000 the BVI. Application Fee for Recognition: US$700 Initial Fee on Recognition: $1,000 (on or before June 30 in any year; $500 thereafter) Annual Renewal Fee: $1,000 Filing for incorporation made to Registrar of Corporate Affairs. Incorporation can generally be completed within 24-48 hours after the memorandum and articles are in final form. For Private and Public Funds, prospectus and various agreements must be finalised and government approvals received before launch. Incubator and Approved Funds may commence business 2 clear business days after submitting a completed application. Private/Public Funds: must apply to be recognised/registered by the FSC before launch (approx. 14 days). Professional Funds: may carry on business up to 21 days prior to being recognised (provided that an application for recognition as a professional fund is submitted within 14 days of commencing business). Incorporation Cost: US$1,435 (including filing fee and first year annual gov fee) Annual Gov Fee: US$450 for companies authorised to issue up to 50,000 shares or with authorised share capital of up to US$50,000 Partnership Cost 2 : US$2,765 (including filing fee and first year annual Partnership Cost 4 : US$2,682 (including filing fee and first year annual Partnership Cost: US$1,735 (including filing fee and first year annual 1 A tax assurance can be obtained for US$195. 2 A tax assurance can be obtained for US$195. 3 A tax exemption undertaking can be obtained for US$1,985. 4 A tax exemption undertaking can be obtained fo US$1,954. Page 6 of 14

gov fee) Annual Gov Fee: US$2,350 Unit Trust Registration and Annual Gov Fee per Unit Trust: US$3,050 Segregated Accounts Company Registration Fee: US$295 Fee per Segregated Account: US$295 (up to a maximum of US$1,180 i.e. 4 accounts; thereafter zero per account) gov fee) Annual Gov Fee: US$1,464 Annual Gov Fee (if not regulated): US$2,440 Unit Trust Registration: US$1,000 Annual Gov Fee: US$610 Segregated Portfolio Company Fee: Registration fee: US$610 Fee per Portfolio: US$366 (up to maximum of US$1,830) Mutual Fund SPCs pay an additional US$305 per portfolio (up to a maximum of 25 portfolios) gov fee) Annual Gov Fee: US$750 Unit Trust Establishment Fee: US$200 Annual Fee: zero Segregated Portfolio Company Application Fee: US$1,500 Application Fee per Portfolio: US$350 Annual Fee: US$1,500 Annual Fee per Portfolio 5 : US$350 *The costs listed do not include legal or service fees charged by service providers, which vary depending on the specific facts of the matter. Please contact any of our offices for a fee estimate for your particular matter. 8. UNIT TRUSTS: Legal Nature, Establishment Procedure & Local Requirements Not a separate legal entity. Only trustee can enter into contracts, sue and be sued. Each investor does not have an entitlement to the specific investments comprised in the trust fund, but just the right to redeem his share in its assets, known as a unit, for cash at a price based on the value of the investments. If open-ended and more than 20 investors, apply to BMA for exemption/classification (approx. 5 days). If satisfies requirements for a Not a separate legal entity. Only trustee can enter into contracts, sue and be sued. Each investor does not have an entitlement to the specific investments comprised in the trust fund, but just the right to redeem his share in its assets, known as a unit, for cash at a price based on the value of the investments. If relevant, apply to CIMA for regulation as a mutual fund under the Law (approx. 5 days). Not a separate legal entity. Only trustee can enter into contracts, sue and, unless section 97 Trustee Act is applied to the trust, be sued. If section 97 is so applied, trustee has no personal liability to counterparty on transaction properly entered into in disclosed or known fiduciary capacity and counterparty effectively afforded right to proceed against fund directly. Each investor does not have an entitlement to the specific investments comprised in the trust fund, but just the right to redeem his share in its assets, known as a unit, for cash at a price based on the value of the investments. Apply to the FSC for registration as a mutual fund under SIBA (approx. 14 days). 5 Subject to 50% discount for the initial year if approval on or after July 1st); provided the total annual fee payable by an SPC will not exceed US$10,000 in any year. Page 7 of 14

Class A Exempt Fund, make filing with BMA under IFA to complete registration. The unit trust must have a Bermuda nexus, e.g. a Bermuda functionary, trustee or resident representative. The trustee of a Cayman unit trust will typically be a trust company under the Banks and Trust Companies Law (as amended). A unit trust may also itself be registered in Cayman with the Registrar of Trusts as an exempted trust pursuant to Section 74 of the Trusts Law. Note that in the case of an exempted trust, the beneficiaries should not include a person resident or likely to be resident or domiciled in Cayman. A unit trust registered as a Public Fund, must have a BVI company as a trustee. 9. LIMITED PARTNERSHIPS: Legal Nature, Establishment Procedure & Local Requirements Separate legal personality available. Can carry on business, sue and be sued in partnership name and is legally independent of its partners. Application made to Registrar of Companies to form; particulars of the partnership required (approx. 24-48 hours). Once organized, the general partner files certificates of limited and exempted partnership to register the partnership. Registrar of Companies issues certificate of registration (approx. 24-48 hours). No separate legal personality available. Can carry on business, sue and be sued in partnership name. General partner submits to Registrar of Exempted Limited Partnerships a statement setting out particulars of the partnership and a declaration that the partnership will not undertake business with the Cayman public save as permitted. Registrar issues certificate of registration (approx.4-5 days; 24 hours for an additional fee of CI$400/US$500). Separate legal personality available. Can carry on business, sue and be sued in partnership name. The proposed local registered agent files (a) a statement signed by or on behalf of each general partner specifying (i) the name of the limited partnership and its foreign character name (if applicable), (ii) the address of the registered office of the limited partnership, (iii) the name and address of the registered agent of the limited partnership, (iv) the name and address of each general partner and (v) the term for which the partnership is entered into or, if for unlimited duration, a statement to that effect, (b) if the general partners wish to elect that the limited partnership shall not have legal personality, a declaration to this effect signed by or on behalf of each general partner, and (c) a signed consent to act as registered agent. Page 8 of 14

No local connection required for general partner(s) (i.e. general partner formed in other jurisdiction can be used without further qualification or fees being payable in Bermuda.. Must appoint resident representative and have Bermuda registered office. Must maintain records of account and a register of partnership interests, which are open to inspection by limited partners only. The certificates of exempted and limited partnership are available for public inspection. The partnership agreement can set out transfer/withdrawal restrictions (if any). 10. PROSPECTUSES Unless accepted by a competent regulatory authority (BMA is a Must have at least 1 general partner with a local connection to Cayman. Must have Cayman registered office. Must file annual statement of prescribed partnership particulars and declaration that the partnership will not undertake business with the Cayman public save as permitted. Subject to partnership agreement, limited partners are entitled to full information regarding the state of the business and financial condition of the partnership. The register of partnership interests is available for public inspection with the consent of the general partner. For a fee, the public can obtain a copy of the certificate of registration or any registered statement filed in respect of the partnership. The partnership agreement can set out transfer/withdrawal restrictions (if any). Registered and Regulated Funds must file a copy with CIMA together Registrar of Limited Partnerships issues a certificate of registration, which shall state whether or not the limited partnership has legal personality. (approx. 14 days). The limited partnership is formed on the date specified in the certificate. No local connection required for general partner(s). Must appoint registered agent in the BVI and have a BVI registered office. Must maintain financial records and underlying documents, including accounts, and registers of general and limited partners which are open to inspection by limited partners. The register of limited partnerships and the register of registered charges are available for public inspection. The Limited Partnership Act provides that, subject to the limited partnership agreement, (i) a limited partner shall not except with the prior written consent of the general partners and (ii) a general partner may with the prior written consent of any general partner, assign, transfer, grant a security interest over or otherwise dispose of all or any part of the partner s partnership interest to another person. Public Funds: must apply and register a copy with the FSC. Page 9 of 14

competent regulatory authority) or appointed stock exchange, or subject to a direction to disapply filing requirement, copy must be filed with Registrar of Companies. Filing Fee: US$95 Must contain particulars set out in the Companies Act 1981 (for fund companies) and the IFA (unless unregulated/ exempted). Master Funds: not required to adopt or file an offering document. 11. FUNCTIONARIES with statutory particulars. Administrative fee for filing for registration of a fund or master fund CI$300/US$366 Master Funds: not required to adopt or file a separate offering document. Application Fee: US$250 Registration Fee: US$500 (or US$250 for an amendment) Professional/Private Funds: required to submit a copy which must contain a prescribed form of investment warning, or if permitted by the FSC, can avoid submitting but must provide each investor with a separate document containing the investment warning. Except for Unregulated Funds, must appoint: Investment manager Administrator Auditor Custodian or Prime Broker (NB: Except for Standard Funds, none of the above need be resident in Bermuda if there is some other Bermuda nexus e.g. a Bermuda director, secretary or resident representative). Waivers of appointment of Custodian and/or Prime Broker are available. Class A Exempt Funds: investment manager must be regulated by an acceptable regulator or manage at least US$100 million (either individually or as part of a group). Standard Funds: if administrator does not carry on administration business in Bermuda, custodian must be licensed by the BMA. Will typically appoint: Investment manager Custodian/Prime Broker Administrator Auditor Registered and Regulated Funds: depending on the type of fund, may be obliged to appoint a licensed mutual fund administrator which must comply with certain obligations and duties pursuant to the Law. 12. ANTI MONEY-LAUNDERING AND TERRORIST FINANCING Investment fund operators are required to appoint a Money Laundering Reporting Officer and Compliance Officer to whom reports should be made and who shall have responsibility to make reports to the Funds, both registered and unregistered, carrying on "relevant financial business" are required to have in place anti-money laundering reporting and compliance procedures and must Private/Regulated Funds: must appoint (unless exempted): Investment manager Administrator Custodian Auditor (NB: for Private/Professional Funds, custodian must be independent from the manager/administrator unless there are sufficient systems to ensure functional independence) Approved Fund must appoint an administrator. Private/Professional Funds: FSC can exempt from requirement to have a manager, custodian or auditor. Public Funds: FSC can exempt from requirement to have a custodian. Certain terms, limitations, restrictions, or conditions that may be placed on a certificate of approval/recognition/ registration will not arise in principle when appointed functionaries are incorporated in BVI, a recognised jurisdiction under SIBA, or a jurisdiction acceptable to the FSC. Funds must comply with relevant anti-money laundering legislation and regulations including the requirement to have an anti-money laundering reporting officer ( MLRO ). The MLRO does not Page 10 of 14

Financial Intelligence Agency when suspicious circumstances require. One individual can fulfil both roles. The Fund must adopt a formal policy in relation to the prevention and detection of money laundering and terrorist financing which must be supplied to and approved by the BMA. The BMA is notified and must approve the Reporting and Compliance Officer. 13. REPORTING REQUIREMENTS Annual submission of statement confirming compliance with the IFA, fund rules and fund prospectus rules to BMA, as applicable. Regulated Funds: BMA approval needed for any proposal to replace a director or a service provider and appoint a Compliance Officer, Money Laundering Reporting Officer and Deputy Money Laundering Reporting Officer (such roles can be undertaken internally or delegated to a third party service provider). Internal reporting procedures must be in place to (1) identify and report suspicious activity; (2) monitor and ensure internal compliance with laws relating to money laundering; and (3) test the AML/CFT system consistent with the Regulations and the Guidance Notes. Registered and regulated funds must notify CIMA of their AML officer appointees. Advise CIMA of changes of directors and service providers. Registered and Regulated Funds: file an amended offering document or statutory particulars if there is a material change with CIMA. Filing Fee: CI$300/US$366 need to be an employee but should be based in a Recognised Jurisdiction. The Anti-Money Laundering Regulations apply to regulated persons including mutual funds and their managers and administrators. The Regulations require such persons to maintain client identification procedures, keep know your client and suspicious transactions records, establish internal reporting procedures for suspicious transactions and have in place internal controls and communication procedures appropriate for preventing money laundering, as well as provide adequate training for staff on their anti-money laundering obligations. Such persons must submit for the approval of the Financial Investigation Agency such identification, record keeping, internal reporting and internal controls and communication procedures. The Anti-Money Laundering and Terrorist Financing Code of Practice offers guidance and favours a risk based approach to establishing internal policies, subject to certain specific requirements enumerated within it. The Code addresses in detail the requirements of the law, as they pertain to internal systems and controls, and requires that businesses provide to the FSC a copy of such internal policies for approval. Incubator/Approved Funds: notification to FSC of any change to the information provided in the application for approval or any matter which has or is likely to have a material impact. Registered/Professional Funds: Page 11 of 14

for any material changes to prospectus/offering document. Material Changes Application: US$258 Class A Exempt Funds: annual compliance statement to BMA that the fund continues to qualify for exemption and outlining any material changes to prospectus/offering document. Class B Exempt Funds: annual compliance statement to BMA. BMA approval required for any proposal to replace a director or a service provider. Standard Funds: monthly reports on share activity to BMA. Institutional/Administered Funds: quarterly reports on share activity to BMA. Amendments or Supplements to Prospectus: CI$100/US$122 Registered and Regulated Funds: file annual return with CIMA. annual returns must be submitted to the FSC. Incubator Funds must submit semi-annual returns confirming continuing eligibility as an incubator fund. If an incubator fund or approved fund exceeds the threshold on net assets or number of investors over 2 consecutive months, it must apply to convert into a private or professional fund or an approved fund (if it is an incubator fund), a closed-ended fund or commence liquidating the fund. Private/Regulated Funds: notification to FSC of a new or amended offering document, change in business address or amendments to constitutional documents. Incubator/Approved Funds: notification to FSC of change in authorised representative, director (if number falls below 2) or administrator (Approved Funds only). Public Funds: FSC approval needed for any material changes to prospectus or structure (including change of director, functionary or auditor). Private/Professional Funds: notification to FSC of any change in director, authorised representative, functionary or auditor. (NB: no notification required if a functionary resigns, is terminated or otherwise ceases to act and a replacement is appointed within 7 days) 14. REPORTING REQUIREMENTS: FINANCIAL Distribution of financial report to investors including copies of audited financial statements. Registered Funds only: Filing of annual audited accounts with BMA required. Generally accepted accounting Registered and Regulated Funds (including regulated Master Funds): annual audited accounts filed with CIMA (unless exemption is granted). Accounts must have local Cayman auditor sign off. Private/Regulated Funds: copy of audited financial statements provided to FSC. International Financing Reporting Standards promulgated by the International Account Standards Board, UK GAAP, US GAAP, Page 12 of 14

principles and generally accepted auditing standards of any jurisdiction can apply. No requirement to have local auditor sign off of audited financial statements. 15. LOCAL REQUIREMENTS: COMPANIES Must maintain a Bermuda registered office. Must appoint a registrar to maintain a register of participants in Bermuda (although overseas sub-register or branch is permissible). No local director required (if secretary or resident representative in Bermuda). 16. MANAGEMENT: COMPANIES Must have at least 2 directors (which must be individuals) and a secretary; if one of these is not ordinarily resident in Bermuda, must appoint a resident representative. Secretary and/or resident representative can be an individual or company. Registered and Regulated Funds: auditor must be acceptable to BMA but is not required to be based in Bermuda. Unregulated Funds: auditor not required. There is no requirement to hold board meetings or, if waived by a shareholder resolution, an annual general meeting. Any such meetings need not be held in Bermuda. Must maintain a Cayman registered office. No local director required. Must have at least 2 individual directors. Corporate directors are permitted in certain circumstances. Registered and Regulated Funds: auditor must be a CIMA-approved firm based in Cayman. Unregulated Funds: auditor not required. CIMA recommends board meetings at least twice per year. Any such meetings need not be held in Cayman. Canadian GAAP or internationally recognised and equivalent generally accepted account standards apply. Must maintain a BVI registered office and registered agent. Must appoint an authorised representative being a BVI entity or individual certified by the FSC for such purpose to act as a liaison between the FSC and the licensee and maintain records. No local director required. Registered/Professional Funds: must have at least 2 directors; 1 must be an individual. Public Funds: must have at least 2 directors; cannot have corporate directors. Registered/Professional Funds: auditor must satisfy requirements of SIBA and the BVI Regulatory Code. FSC can exempt requirement to have an auditor. Public Funds: auditor must be specifically approved by the FSC. There is no requirement to hold board meetings or an annual general meeting. Any such meetings need not be held in the BVI. Page 13 of 14

This publication should not be construed as legal advice and is not intended to be relied upon in relation to any specific matter. It deals in broad terms only and is intended merely to provide a brief overview and give general information. Conyers Dill & Pearman, January 2019 www.conyersdill.com Page 14 of 14