Bahamas Investment Funds - Overview

 

The Bahamas leads the field in the region for investment fund administration, primarily due to key funds industry legislation that sets the jurisdiction ahead of its rivals.

Published:    Date: Updated:

Investor Resources October 11, 2010 January 25, 2012

Source: Bahamas Financial Services Board © 2009

The Investment Funds Act 2003 positions The Bahamas at the cutting edge of modern investment fund administration. The Act updates the general legislative and supervisory environment and introduces an additional style of collective investment vehicle–The Bahamas SMART© fund– officially known as the Specific Mandate Alternative Regulatory Test fund.

Providing financial services to a sophisticated international clientele requires a sophisticated legislative approach. In drafting the new Act, the Securities Commission of The Bahamas was mindful of the need for flexibility to adequately cater to the evolving needs of the global marketplace.

The Act recognizes four classes of fund:

1. The Standard Fund. Anticipates an offering to the general public, and is a highly regulated, modern investment vehicle designed to operate as a traditional collective investment scheme.

2. The Professional Fund. A class designed for sophisticated investors, and may be licensed by an authorized administrator (in addition to the Securities Commission), thereby enabling faster time to launch.

3. The SMART Fund. A specific mandate alternative regulatory test fund suitable for innovative structuring of investment funds.

4. The Recognized Foreign Fund. An investment fund licensed or registered in a prescribed jurisdiction and not suspended from operation.

These four classes of funds, coupled with a progressive approach to regulation and a reputation for quality administration, place The Bahamas at the forefront of the funds industry.

Flexible rules basis of SMART fund

Traditional forms of regulation are now too restrictive as structuring options for investment funds continue to expand. Previous legislation in The Bahamas and elsewhere defined within the body of statute-specific classes of funds, resulting in the financial community being forced to fit investment fund projects into one of these defined classes.

The Bahamas SMART fund concept caters to the modern dynamic market. It is an innovative, progressive and flexible product to attract new business and re-organize existing business to better suit the needs of clients. In particular, where investment funds are essentially private arrangements, they will now enjoy a supervisory environment appropriate for the limited, specific nature of the project and will not suffer the “broad brush” regulatory approach, unavoidable elsewhere. Key features include limited content offering documents and no annual audit requirement.

SMART funds provide industry participants with the means to offer clients innovative structuring solutions via a regulated vehicle, domiciled in a premier international financial centre.

The Securities Commission has pre-approved five SMART fund mandates and published the criteria for each by means of SMART fund “templates” . Promoters wishing to structure a fund in accordance with any of these approved templates need only make arrangements with an authorized administrator who has the power to issue a licence, resulting in a significant reduction in time to market.

Promoters may also approach the Securities Commission, usually via a local representative, to seek recognition for a new structure of SMART fund bearing specific project features. It is anticipated that as innovative uses for this style of fund develop, additional templates will be approved, creating valuable precedents for the global investment fund community.

As a blue-chip, well-regulated and cooperative financial centre, The Bahamas has always been mindful of the needs of the marketplace. The Act retains the ability of local fund administrators with an unrestricted licence (authorized administrator) to license professional and SMART investment funds independently of the regulator. This ability to launch new funds based on the due diligence review of the authorized administrator has proven to be a major advantage for The Bahamas and a catalyst for growth.

A new fast-track process for funds offered to accredited investors has been established by the Securities Commission guaranteeing review and response within 72 hours.

A system of regular on-site inspections, coupled with the partnership approach inherent within The Bahamas financial services industry, provides the maximum flexibility without any dilution of the regulator’s powers and overall supervision.

The Act entrenches this flexible approach by allowing Bahamian funds to be audited by recognized firms without the need for local sign-off.

Administrators of a Bahamas-based fund must have a physical presence in the jurisdiction. This requirement does not encumber the contracting of certain tasks to institutions outside of The Bahamas as agreed between the fund, administrator and other third parties.

Investment management companies established outside The Bahamas appointed as investment managers to a Bahamian fund are not required to be licensed or registered in The Bahamas. Additionally, if a promoter wishes to appoint a Bahamian company to act as investment manager to a Bahamian fund, such company is not required to be registered or licensed by the Securities Commission of The Bahamas in cases where its activities are limited to providing investment management services to a single fund or related funds in The Bahamas.

Corporate directors may be appointed, which facilitates corporate administration and the involvement of global financial institutions in the administration of the fund.

Regulatory strength

The Bahamas is an active member of established international regulatory and policy-making bodies and devotes considerable resources to its participation in these bodies and adherence to international best practices.

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For technical details on setting up an investment fund in The Bahamas, look for the link to download The Bahamas Investment Funds Guide at www.thebahamasinvestor.com or The Bahamas Financial Services Board website at www.bfsb-bahamas.com