BERMUDA's resident investment managers have been told by the Ministry of Finance that overseas investment managers will be allowed to set up shop here.

While the Government created a new "directed brokerage" rule in 2000, which stipulated that Bermuda's pension fund managers had to transact 30 per cent of their trades with one or more of five pre-selected Bermuda stockbrokers, the Ministry is taking the opposite tack with Bermuda's investment managers.

In 2000, Bermuda's pension fund consultant Tina Poitevien recommended a number of fund managers who were Bermuda-based, but only Bermuda Asset Management was selected at that time.

Despite the replacement of a number of US managers for poor performance during the intervening years, the Bank of Bermuda, Bermuda Commercial Bank, W.P. Stewart and Orbis Investment Management, all recommended by Ms Poitevien, were never chosen as managers, and the Bank of N.T. Butterfield was never recommended. A local investment manager said it was not unusual for governments to direct that pension or other government funds should be managed, to the extent possible, within the country.

"There are governments, Canada being a good example, where the provincial and national governments try to support local businesses where possible; it has to be Government policy, and that's exactly what happened with the 'directed brokerage' here," he said.

"It's usually up to the pension fund consultant, and unless the consultant is told that the Ministry of Finance wants to see some local managers being picked, it's not likely to happen. Normally, consultants will play safe, and pick the global household names, so that there is less chance of being blamed if things don't work out too well.

"There are some very good managers in Bermuda, and the Ministry could certainly ask the consultant to reconsider them. But if there's going to be Government policy to support local investment management firms, that's what countries all around the world do, and if it's handled properly, and transparently, it would certainly help Bermuda.

"If I could get another $100 million in here, I could hire more Bermudians. The selection of investment managers is not 'rocket science', as long as the system and process does not pick them based on political influence.

"But the Ministry is saying exactly the opposite; they are telling us that they will be bringing in competition into our business, and that's fine, as long as the playing field is level. If they open up Bermuda to competition, then we might have to look at the cost of doing business, and if we have to hire managers or back office staff to work in Canada, rather than in Bermuda, that will not help the island.

"The Ministry of Finance has gone round to most of the players here, and interviewed us about opening up to competition, and asked what we would think of it. We are not fearful of competition, as long as it's fair.

"It's always about performance and service. Any firm hanging its shingle here would probably only have a marketing office for selling to the big players here, like ACE or XL, and the actual investment function and back office would stay in the US or wherever. It's too expensive here, and it would only make the housing situation worse, if they allow a lot of new investment people in here.

"Right now, all of the big investment managers come here, but they come with a suitcase, and the only local entities that benefit are hotels and restaurants; if they get licensed by the BMA, they'll have an office, and the BMA will have more money."

Opposition Leader Dr. Grant Gibbons found it ironic that a Government dedicated to Bermudianisation had only placed some $3.5 million out of more than $1.2 billion with Bermuda-based entities.

"The Government may pay lip service to the idea of using Bermuda businesses, but in practice, they have almost exclusively employed overseas investment managers, when there are a number of very high quality investment managers right here."

To the question of hiring some local investment managers to manage PFIC funds, Minister of Finance Paula Cox said it was her understanding "that there have been local service providers who were in the mix of consideration", including some of those mentioned above.

Ms Cox noted that "we have made a commitment to a re-examination and review of the processes and procedures with the investment of the Public Funds, with a view to improving and to enhancing its governance system and structures."

Ms Cox offered no response to a question asking whether overseas money managers were going to be allowed to open offices here.

In an e-mailed statement yesterday, Ms Cox said that consultation with local investment managers was going on, as part of a wider process of "public outreach meetings" with representatives of many different types of businesses.

"Late in 2004 the Ministry initiated action to meet on an informal basis with round-table lunch meetings with small groups of executives," the statement read. "These discussions have been wide-ranging and touched on a number of topical issues affecting Bermuda, as a reputable financial services jurisdiction and to date Minister Cox has had luncheon meetings with small groups of executives in the international insurance sector and the investment sector.

"This week Minister Cox met with a few executive representatives of domestic insurance companies. Next week Minister Cox will meet with a small delegation of commercial fishermen.

"These round-table discussions, while focused, are broad in scope and will help to better inform decision makers and strengthen the overall calibre of the policy-making decisions. The aim is to use best efforts to ensure that Bermuda is competitive, to promote diversification in all economic sectors and to hear from some of the experts on current hot issues so that Bermuda's national interest can be best served.

"The Ministry of Finance also plans to conduct some focus groups and meetings with the local business sector generally including small businesses.

"Communication with various representatives of various sectors of the economy will continue as the Ministry of Finance seeks to promote an environment which is supportive and receptive to facilitating a greater level of opportunity for those Bermudians who wish to better position themselves to compete whether in the local economy or in the global arena.

"The Ministry's directed outreach with public and local business including niche industries will continue. Ministry officials are also currently visiting a number of local and exempted company investment service providers to solicit their feedback in advance of an investment industry round table discussion. The input of local investment management, investment advisory and investment broker companies and entities are being actively encouraged.

"These meetings with investment service providers are designed to discuss and canvass views collectively as options are considered so that local businesses that are investment service providers can give their views as to how their business opportunities can be enhanced."

Minister Cox also reiterated her comments made in the House of Assembly last Friday, when she said:

"Globalisation is a fact of life. On balance, globalisation has brought great benefits and has opened up new opportunities for social and economic progress.

"Yet at the same time, we are conscious that we have to ensure that we do all we can to be even-handed in our approach to business.

"We are aiming to promote an environment which is supportive and receptive to facilitating a greater level of opportunity for those Bermudians who wish to compete on the global arena."