Ageing infrastructure is a threat to the growth and development of any country. Across the Caribbean, which undergoes an annual battering from mother nature’s tropical storms, most island nations don’t have the budget to upgrade their infrastructure. Well, some clever capitalists have decided to do something about that, beginning in Bermuda.
several insurance and reinsurance firms have raised nearly $100 million for a fund to upgrade bermuda’s infrastructure.
The Bermuda Infrastructure Fund (BIF) will use investor capital to improve ports, docks, roads, bridges, industrial facilities and healthcare facilities.
This type of arrangement makes sense on many levels. Insurance and reinsurance companies have significant assets because of the premiums they collect from people and firms buying insurance coverage. These assets are used to pay claims when they arise. But, until a claim payment is necessary, the money is put to work so it can generate additional income, rather than just sit in a bank account. Insurance companies like to invest the cash in stable long-term assets to match their liability horizons. To avoid excessive market volatility, they tend to favor bonds, private equity and infrastructure projects for investment, as in this case.
This infusion of cash accomplishes two important things for Bermuda’s economy. First, it funds the modernization of the country’s infrastructure. Second, it creates new jobs for Bermudians with every new project. Needless to say, both factors end up having a positive impact on the economy and will contribute to Bermuda’s GDP growth in the short and long-term.
The types of investment opportunities that the BIF would consider include:
- Upgrades to Bermuda’s energy infrastructure
- Sewage treatment
- New port facilities at Marginal Wharf
- Redevelopment of the Hamilton Waterfront
- Construction of mixed use residential and commercial buildings in Hamilton
The idea of the fund was conceptualized by American International Group CEO, Brian Duperreault, who felt that private sector investment in Bermuda’s infrastructure improvements would be a win-win for all, including investors, Bermuda’s government, and its citizens.
Other industry leaders – Don Mackenzie of New Venture Holdings and Preston Hutchings of Arch Capital Group – joined Mr. Duperreault in this initiative, resulting in almost $100 million being raised for the infrastructure fund by the trio.
The establishment of the BIF represents a vote of confidence in the island nation’s future, and another victory for Bermuda’s Premier, David Burt, who said: “Here in Bermuda, government’s goal of establishing new industries like InsurTech depends on a sound infrastructure being in place. The Bermuda Infrastructure Fund is a potent vehicle to help achieve this goal.”
MORE ABOUT THE BERMUDA INVESTMENT FUND (BIF)
The founding members of the fund are AIG, Arch, XL Catlin, Axis, RenaissanceRe, Hamilton Insurance Group, Argus and BF&M. Mr Duperreault, who was born in Bermuda, is also the founder of Hamilton Insurance Group. This set includes local and international companies.
Because these are insurance guys who don’t have in-house expertise in infrastructure investment, they have hired Fortress Investment Group LLC to act as manager of the fund, with an advisory board comprised of representatives of several limited partners and a government representative. Fortress is a leading global investment management firm, specializing in a range of investment strategies – private equity, credit, liquid markets and traditional asset management – on behalf of over 1,600 institutional investors and private clients worldwide.
KEY FEATURES OF THE FUND
- The Fund is being formed primarily to make investments in Bermuda-based infrastructure assets and opportunities
- The General Partner will be Fortress Bermuda Infrastructure Fund GP LLC & The Manager will be Fortress Bermuda Infrastructure Fund Advisors LLC
- The Fund is seeking a minimum of $100 million in commitments from Bermuda-based insurance companies
- Management Fees are payable semi-annually in advance, in an amount equal to .75% (1.5% annually) of capital invested. The minimum fee is $1 million per year
- In the event that the Management Fee is less than $500,000 in a semi-annual period the Government must pay the difference. The amount paid by Government will represent an interest in the Fund
- Government will be liable to pay the initial management fee of $500,000 and will be liable to pay some fees as long as the amount invested by the fund is below $66.7 million
- The General Partner will establish an Advisory Board composed of representatives of certain limited partners and a Government representative
- The Fund may borrow funds to facilitate investments or otherwise in connection with the Fund’s business