Further opportunities for PE growth
For managers who may already be using an onshore Delaware LLC, they now have the opportunity to use a Bermuda LLC as an offshore vehicle. This follows the formal introduction of the Limited Liability Company Act 2016 (LLC Act), which was passed in the Senate in July 2016 and became operative on 1 October, 2016.
"There is already strong interest in this new legal vehicle," confirms Mark Baumgartner (pictured), Partner at Deloitte and leader of its asset management practice.
The LLC is a hybrid entity, which merges characteristics of both a limited partnership and a company limited by shares, providing maximum flexibility. The timing of its introduction could be prescient, as Bermuda's private equity business remains strong. The jurisdiction saw six exits worth a total value of USD19.68 billion in the first three quarters of 2015, making it the jurisdiction with the largest aggregate deal value for private-equity exits.
"In Bermuda there continues to be a lot of M&A activity in the reinsurance space and at Deloitte we are frequently speaking to our global asset management clients who are intending to launch or participate in private equity structures, in the both the ILS and traditional private equity space," says Baumgartner.
He says that investment managers are showing more interest in the illiquid end of the spectrum and are looking to start new, dedicated vehicles to explore private equity opportunities to avoid having illiquid assets in their flagship fund, as a response to the 2007-2008 global financial crash.
"Direct lending strategies are also becoming more prevalent. As opposed to hedge fund managers simply picking up distressed debt assets from banks, they are looking to originate their own loans," observes Baumgartner.
There are many private equity firms that have used Bermuda one way or the other in the past; this might have been in relation to ILS investments, backing reinsurance companies, or launching holding companies to further their global investment objectives. Indeed, one of the benefits that Bermuda has over other offshore jurisdictions is the number of operating entities in Bermuda in the reinsurance sector and the significant related capital that operates out of Bermuda.
There are a large number of reinsurers physically based on the island that are backed by private equity money. The fact that Bermuda has a proven legal system, based on English common law, a dedicated commercial court and recourse to the UK Judicial Committee of the Privy Council, gives confidence to private-equity groups, should they need to seek resolution on a deal complication.
"What we are trying to do is provide sensible regulation that covers the new reality of what it means to participate in today's global economy," stresses Baumgartner.
"The fact that we have more than 100 tax treaty partners around the world and have been on the OECD whitelist since 2009 puts us in a strong position."
With positive noises coming out of the US regarding infrastructure investment, having access to an offshore LLC vehicle could prove useful to US private-equity groups as they explore M&A opportunities.
"Last year we saw significant global investors launch Bermuda fund products, with traditional investment strategies outside of ILS. That is a good validation for the jurisdiction but we need to continue to work hard to build on that success," concludes Baumgartner.