Alternative Investment Funds 2020 A practical cross-border insight into alternative investment funds work Eighth Edition Featuring contributions from: Anderson Mori & Tomotsune Dechert LLP Mori Hamada & Matsumoto Bär & Karrer Ltd. Deloitte Legal Travers Smith LLP Bonn & Schmitt Dillon Eustace VdA Brodies LLP Flick Gocke Schaumburg Vivien Teu & Co LLP Cadwalader, Wickersham & Taft LLP IC Universal Legal Walkers (Bermuda) Limited Cases & Lacambra Maples Group Collas Crill LLP McCarthy Tétrault LLP Table of Contents Expert Chapters The Rise of ESG Investing 1 Mikhaelle Schiappacasse, Dechert LLP The Global Subscription Credit Facility and Fund Finance Markets – Key Trends and Forecasts 8 Wesley A. Misson & Joseph P. Zeidner, Cadwalader, Wickersham & Taft LLP Bringing Foreign Investment Funds into Japan 12 Yasuzo Takeno & Fumiharu Hiromoto, Mori Hamada & Matsumoto Private Fund Management Issues Arising From COVID-19 17 Sam Kay, Travers Smith LLP Q&A Chapters Andorra Japan 22 Cases & Lacambra: Miguel Cases Nabau & 113 Anderson Mori & Tomotsune: Koichi Miyamoto & Laura Nieto Takahiko Yamada Angola Jersey 122 29 VdA: Pedro Simões Coelho, Ricardo Seabra Moura, Collas Crill LLP: Dilmun Leach & David Walters Carlos Couto & Inês Moreira dos Santos Luxembourg 128 Bermuda Bonn & Schmitt: Amélie Thévenart 36 Walkers (Bermuda) Limited: Sarah Demerling & Melanie Fullerton Mexico 136 Deloitte Legal: Martín Cortina Camargo, Ramón Canada Bravo Herrera, Héctor Alejandro Cuevas González & 45 McCarthy Tétrault LLP: Sean D. Sadler, Eduardo Michán Escobar Nigel P.J. Johnston & Cristian O. Blidariu Mozambique 143 VdA: Pedro Simões Coelho, Ricardo Seabra Moura, Cayman Islands Carlos Couto & Inês Moreira dos Santos 54 Maples Group: Grant Dixon & Andrew Keast Portugal England & Wales 150 62 VdA: Pedro Simões Coelho, Ricardo Seabra Moura, Travers Smith LLP: Jeremy Elmore & Emily Clark Carlos Couto & Inês Moreira dos Santos Germany 74 Scotland Flick Gocke Schaumburg: Christian Schatz 161 Brodies LLP: Andrew Akintewe Hong Kong Spain 80 Vivien Teu & Co LLP: Vivien Teu & Sarah He 170 Cases & Lacambra: Miguel Cases Nabau & Toni Barios Asensio India 92 Switzerland IC Universal Legal: Tejesh Chitlangi & 179 Sushreet Pattanayak Bär & Karrer Ltd.: Rashid Bahar & Martin Peyer USA Ireland 189 101 Dillon Eustace: Brian Kelliher & Richard Lacken Dechert LLP: Karen L. Anderberg & Adrienne M. Baker 36 Chapter 7 Bermuda Bermuda Sarah Demerling Walkers (Bermuda) Limited Melanie Fullerton 1 Regulatory Framework 1.2 Are managers or advisers to Alternative Investment Funds required to be licensed, authorised or regulated by a regulatory body? 1.1 What legislation governs the establishment and operation of Alternative Investment Funds? The Investment Business Act 2003 (the “IBA”) governs the regu- lation of “investment business” (described below) in Bermuda. The establishment and operation of investment funds in Pursuant to the IBA, managers and advisors can be organised Bermuda (“investment funds” or “funds”) is governed by: anywhere and act as managers and advisors to all forms of funds. ■ the Companies Act 1981, as amended (the “Companies Act”); There is no requirement for a manager or adviser to be licensed ■ the Investment Funds Act 2006, as amended (the “IFA”); ■ the Investment Funds (Definition) Order 2019 (the in Bermuda unless they have physical premises and employees “Definition Order”); in Bermuda. All managers of authorised funds (as described ■ the Investment Fund Offering Document Rules 2019 (the below), will be required to act in accordance with the IFA in all “Fund Offering Document Rules”); and dealings concerning the fund. The BMA will evaluate whether ■ the Investment Fund Rules 2019 (collectively, with the the manager is a fit and proper person and will take into account Fund Offering Document Rules, the “Fund Rules”). the manager’s experience and expertise in relation to the fund. The Bermuda Monetary Authority (the “BMA”) is the prin- The Economic Substance Act 2018 (as amended) (the “ES cipal body responsible for the regulation of investment funds, Act”) and the Economic Substance Regulations (as amended) including those listed on the Bermuda Stock Exchange. (the “ES Regulations”, together with the ES Act, the “ES Law”), Investment funds in Bermuda may be structured and organ- became operative on 31 December 2018. The ES Law applies ised under Bermuda law in the following ways: to any “relevant entity” that conducts a “relevant activity” in a) a company limited by shares; a “relevant financial period”. A “relevant entity” includes a b) a limited partnership; company incorporated or registered under the Companies c) a limited liability company (“LLC”); Act, including a permit company and an overseas company, a d) a segregated accounts company; Bermuda LLC and a Bermuda exempted partnership, exempted e) an incorporated segregated accounts company; and limited partnership or overseas partnership that has elected to f) a unit trust scheme. have separate legal personality in accordance with section 4A An investment fund is defined in the IFA to include any of the Partnership Act, 1902. The ES Act does not apply to arrangements with respect to property of any description, a “non-resident entity” which is resident for tax purposes in a including money, the purpose or effect of which is to enable jurisdiction outside Bermuda that is not on the EU “black list”. persons taking part in the arrangements to participate in or Additionally, an entity that is not a “relevant entity” is out of receive profits or income arising from the acquisition, holding, scope and has no obligations under the ES Law. management or disposal of the property or sums paid out of Under the ES Law, “fund management” is a “relevant activity”. such profits or income. Where a “relevant entity” is conducting “fund management” as The arrangements must be such that the participants do not a business, it must satisfy the economic substance requirements, have day-to-day control over the management of the property, as prescribed in section 3 of the ES Act and the ES Regulations. whether or not they have the right to be consulted or to give Guidance Notes on the general principles relating to the directions. The arrangements must also have one or both of economic substance requirements in Bermuda were issued on the following characteristics: (a) the contributions of the partic- 24 December 2019. Sector-specific guidance has been issued ipants and the profits or income out of which payments are to in draft and remains subject in all respects to review by the be made to them are pooled; or (b) the property is managed as a EU Code of Conduct Group on Business Taxation and by the whole by or on behalf of the operator of the fund. OECD Forum on Harmful Tax Practices. Additionally, the Definition Order prescribes certain arrange- For managers physically domiciled in Bermuda, there are ments which fall outside the definition of “investment fund” in exemptions available from the licensing regime if they fall within accordance with the IFA, for instance, a vehicle where the units the scope of the Investment Business (Exemptions) Order 2004 of the participants confer rights in respect of only one asset. Any “arrangement” prescribed under the Definition Order is (the “Exemption Order”) further described below. not be defined as an “investment fund” for the purposes of the “Investment business” services are very broadly defined and IFA and will not need to apply for registration prior to its launch include dealing in investments, arranging deals in investments, with the BMA. managing investments, providing investment advice and safe- The arrangements can be open-ended or closed-ended. guarding and administering investments. To be deemed to Alternative Investment Funds 2020 Walkers (Bermuda) Limited 37 be carrying on investment business “in or from” Bermuda, a 1.3 Are Alternative Investment Funds themselves person must carry on investment business from a place of busi- required to be licensed, authorised or regulated by a ness maintained by such person in Bermuda with employees. regulatory body? Therefore, unless the manager maintains an office in Bermuda with employees or has an arrangement that the Minister of Due to the recent legislative amendments, which have been Finance by order determines will constitute the carrying on of effective from 1 January 2020, all investment funds meeting business in Bermuda, the IBA will not apply. the definition under the IFA must be authorised or registered Under the Exemption Order, a person (not being a “market with the BMA. Amongst others, the legislative changes brought intermediary” (described below)) carrying on investment busi- closed-ended funds (arrangements in which the participants are ness shall be exempt from the requirement to obtain a licence not, at their election, entitled to have their units redeemed) into under the IBA where such person provides investment business scope. Closed-ended funds (i.e. certain private equity funds) services exclusively to: must now register with the BMA on or before 30 June 2020. a) High-income private investor: an individual who has Additionally, overseas investment funds managed or promoted had a personal income in the last two years in excess of in or from within Bermuda must be designated by the BMA as US$200,000 in each of the two years preceding the current an overseas fund. year or has had a joint income with that person’s spouse Under the IFA, designated funds, registered funds and author- in excess of US$300,000