Top 10 Frequently-Asked Questions relating to Bahamas Investment Funds

1. Do the laws of The Bahamas require investment funds to be regulated?

A fund which satisfies the definition of an investment fund under the Investment Funds Act, 2003 (the “IFA”) is prohibited from carrying on or attempting to carry on business unless it licensed or registered under the IFA. A regulated investment fund is therefore one which is licensed or registered under the IFA.

2. Who is responsible for the regulation and administration of the IFA and of investment funds?

The Securities Commission of The Bahamas (the “Commission”) is responsible for regulating investment funds and for maintaining a general review of the operations of investment funds and parties related to investment funds in The Bahamas.

3. What is an “investment fund” under the IFA?

Under the IFA, an investment fund is a company, partnership or unit trust that issues or has equity interests the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and achieving profits or gains arising from the acquisition, holding, management or disposal of investments AND which has a nexus to The Bahamas either by:

(i)         its incorporation, formation or registration (as applicable);

 (ii)      its administrator being a company incorporated or registered pursuant to the laws of The Bahamas or which administrator has a place of business or uses an address in The Bahamas;

(iii)      in the case of a unit trust, its trust instrument is governed by the laws of The Bahamas or its trustee is a company incorporated or registered pursuant to the laws of The Bahamas or which has a place of business or uses an address in The Bahamas; or

(iv)      in the case of a partnership, its partnership articles are governed by the laws of The Bahamas or its general partner is a company incorporated or registered pursuant to the laws of The Bahamas or which general partner has a place of business or uses and address in The Bahamas.

 Such funds are also “Bahamas-based” funds. Funds whose only nexus to The Bahamas are via their investment manager, investment advisor or custodian, are “non- Bahamas based investment funds”.

4. Are there different types of regulated investment funds?

Yes, there are four different classes or types of investments funds under the IFA, namely:

(i)         professional funds;

(ii)        SMART (Specific Mandate Alternative Regulatory Test) funds;

(iii)       standard funds; and

(iv)       recognized foreign funds

Professional, SMART and standard funds are all “licensed” funds and the recognized foreign fund is a “registered” fund. A recognized foreign fund is one where:

(i)        its equity interests are listed on a prescribed securities exchange and not licensed in The Bahamas;

(ii)       it is licensed or registered in a prescribed jurisdiction and not suspended from operation; or

(iii)      it is incorporated or established and is in good standing in a prescribed jurisdiction.

 5. Are all investment funds required to have a prospectus or offering document?

The professional and standard fund are required to have a prospectus or offering document that complies with the requirements of the IFA and the Investment Funds Regulations, 2003. In some cases, a SMART fund is required to have a short form prospectus or offering document, in the form of a term sheet, but some SMART funds are not required to have either.

6. Who are the parties related to an investment fund and is an administrator required?

Under the IFA, the parties related to an investment fund are:

(i)         the administrator;

(ii)        operator (directors, trustee or general partner);

(iii)       promoter;

(iv)       custodian; and

(v)        investment manager or investment advisor.

In the majority of cases, licensed investment funds are required to have an investment fund administrator which is licensed as such by the Commission save however, that some SMART funds do not require an administrator or one which is licensed by the Commission.

7. Do investment funds have financial reporting requirements?

Standard and professional funds are required to be audited annually and to file a copy of audited financial statements with its licensor (that is, its administrator or the Commission, as applicable) within six months of its financial year end.

In the case of SMART funds model 002, 004 and 005, such funds are not required to be audited annually if all of the holders of equity interests unanimously waive the requirement for an annual audit. If the annual audit requirement is waived, the fund is required to file semi-annual performance reports.

For the SMART fund 001, while annual audited statements are not required, such fund is required to produce annual unaudited financial statements and semi-annual performance reports and for the SMART fund 006, a performance report or management account is to be filed every six months with the Commission and every shareholder of record.

8. Are investment funds required to have a minimum number of directors?

An investment fund which is a company is required to have a minimum of two directors.

9. Who can license investment funds?

The Commission or an administrator which holds an unrestricted investment fund administrator’s license is authorised to license investment funds. However, while the Commission can licence all types of funds, an unrestricted investment fund administrator can only licence professional funds and certain types of SMART funds.

10. Do regulated investment funds require a local auditor?

No, there is no requirement for such funds to appoint a local auditor (that is, one that is based in The Bahamas or one that conducts business in or from The Bahamas).

This information is not intended to constitute a legal opinion in any way.  If you require legal advice regarding Bahamian investment funds you should contact a Bahamian securities lawyer.  You may contact a Bahamian securities lawyer by clicking here.