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Features - July 2006

 

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A fifth and SMART(er) fund

A fifth and SMART(er) fund

The new template is well suited to family office arrangements and can be easily set up

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The Bahamas Investor Magazine
July 1, 2006
July 1, 2006
Nicole Hesse

Late last year, The Banker, a publication of the UK’s Financial Times Group, named The Bahamas as best International Financial Centre (IFC) in the western hemisphere–the new catchphrase for what used to be called offshore centres. The award not only recognized The Bahamas’ strength in such areas as private banking, it also acknowledged progressive strides recently made in legislation and product innovation.

Just a few months later, in January of this year, the innovations continued as the Bahamian investment funds industry took another step forward to develop investor-friendly products. Regulators approved a new–and fifth–SMART Fund template, a category of lightly regulated funds. This newest template is particularly well suited to family office arrangements that can be set up and administered with ease.

The Investment Funds Act, 2003 updated the country’s legislative and supervisory environment for the funds industry and recognized four distinct classes of funds: Standard, Professional, Recognized Foreign and an innovative type of investment vehicle referred to as the SMART Fund. Short for Specific Mandate Alternative Regulatory Test Fund, these flexible structures are not subject to the broad-brush style of rules applied to traditionally regulated investment funds. Instead, they are only subject to a degree of supervision deemed appropriate to the mandate of the investment pool and the investors in question. While four pre-approved fund templates were part of the original introduction, the door was open for more industry-driven options, resulting in the fifth fund model approved earlier this year.

As of June 30, 2005, there were 73 SMART Funds registered with the Securities Commission of The Bahamas and anecdotal evidence suggests their use is on the rise as a vehicle for private wealth management. According to Diveane Bowe, a partner in the audit division of KPMG Bahamas Ltd’s Nassau office, SMART Funds account for a sizeable portion of the growth being seen here by his firm. “They’re being used more for private wealth than open-ended funds, per se. We have a lot of clients now who are using these structures as their private investment vehicles, where it’s being profession-ally managed by a third party – a private bank or an investment manager out of the US with only one or two shareholders. They’re bringing their funds to The Bahamas and using these funds as a vehicle for investment,” Bowe says.

Colleague Simon Townend, managing director of KPMG’s corporate finance group, says this type of innovative structure, coupled with the country’s wealth-management expertise give The Bahamas a competitive edge against other international jurisdictions. “I think The Bahamas is differentiating itself because we’re looking at the different types of funds with more flexibility and tying them into the private banking and the wealth-management industry,” he says.

Getting a global groove
Paul Winder, director of business development with Ansbacher (Bahamas) Ltd, agrees that “on the product side, there has been a call for advancement. The days of only incorporating multiple basic company and trust structures has changed,” he says. “Now people are looking at more sophisticated planning and are also looking to relocate to The Bahamas and set up businesses.”

And, he says, “the government has been proactive in introducing product legislation at the behest of such bodies as the OECD, FATF, et cetera.”

One major advance came in 2004, when The Bahamas became the first leading common-law jurisdiction to introduce the Foundations Act. Something of a hybrid between a trust and a company, foundations are a useful tool for tax and estate planning, asset protection, preserving family wealth and confidentiality, segregation of assets and establishing charities.

Other advances introduced at around the same time included legislation allowing for segregated account companies and private trust companies, making more Bahamian-based structures available for financial planners to use in estate planning and wealth management. On the service side of the ledger, the Securities Commission established a fast-track process for granting approval to new funds, guaranteeing their review and response within 72 hours.

Cost-effective administration
The Bahamas has also retained its place as a respected centre for fund administration. “We see a lot of work coming to KPMG through existing relationships where, for different reasons, they’re transferring a lot of the administration functions for audits related to those funds to The Bahamas, to service providers here,” KPMG’s Bowe says. “One of the advantages we do have over the other jurisdictions is that it’s actually less expensive to administer a fund here and to provide professional services here, as far as legal fees, administration fees, accounting fees and other professional service-related fees.” Colleague Townend adds that administration for hedge funds is “growing all of the time.”

A place to work and play
More than financial products are drawing investors ashore. Seven hundred islands and cays, sandy beaches, a subtropical climate, friendly culture and quick access to the US East Coast–Miami is less than an hour’s flight from Nassau–earns this paradise high marks from people looking for a second home or idyllic relocation. “People want to move to The Bahamas,” Paul Winder says. “If you can come here, set up and operate your business it’s akin to being in the US, Europe or the Far East whilst living in paradise then why wouldn’t you?

“You can see there’s been a lot of inward investment in The Bahamas. The property developments have just been incredible– absolutely astounding.

“There are also a [plethora] of high-end developments within The Bahamas such as the Ritz-Carlton on Rose Island, One&Only Ocean Club on Paradise Island and Baha Mar on Cable Beach.”

As The Banker distinction confirmed, lifestyle, climate, natural beauty, the absence of most taxes and, of course, innovative financial solutions have all helped to make The Bahamas the western hemisphere’s financial jurisdiction of choice.

Fund fundamentals
For more information download The Bahamas Investment Funds Guide at www.thebahamasinvestor.com or visit www.bfsb-bahamas.com; www.kpmg.com.bs; www.ansbacher.com

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