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Investment funds
Investment funds

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
January 16, 2013
January 16, 2013

The Investment Funds Act, 2003 (amended 2011) 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.

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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Standard funds
Snapshot
A recognized legal structure in The Bahamas that issues or has equity interests in the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and achieving profits or gains from the acquisition, holding management of disposal of investments. This type of fund does not fit the definition of a Professional Fund, a SMART Fund or a Recognized Foreign Fund.

Equity interest

  • Equity interest held only by investor
  • No minimum investment by the investor.
  • A share, trust unit or partnership interest that carries an entitlement to participate in the profits or gains of the issuer and is redeemable or subject to be repurchased at the option of the investor.
  • Does not include closed-end issuers.
  • Close-end issuers may elect to be licensed as an investment fund.

Licensor
A Standard Fund must be licensed by the Commission. The licensing process should take 6-8 weeks after submitting a completed application.

Structures
Company (incl Segregated Accounts Company), Limited Partnership, Unit Trust.

Requirements

  • Bahamian administrator–delegation to foreign sub-administrator is acceptable.
  • Accounts prepared in accordance with international accepted accounting standards (or other recognized GAAP).
  • Prescribed disclosure requirements in the offering memorandum.

These are in line with the best industry practices.

Open architecture

  • No local auditor requirement.
  • No local custodian requirement.
  • No restrictions on investments or investment style.
  • No restrictions on leverage.
  • No direct taxation. Therefore no tax on income, capital gains, dividends earned by the fund or the investor.
  • No stamp duty on transactions.
  • No public disclosure of investors or the accounts.
  • No exchange controls.

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Professional funds
Snapshot
A recognized legal structure in The Bahamas 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 from the acquisition, holding, management or disposal of investments.

Equity interest

  • Equity interest held only by eligible investor
  • No minimum investment by the eligible investor
  • A share, trust unit or partnership interest that carries and entitlement to participate in the profits or gains of the issuer and is redeemable or subject to be purchased at the option of the investor.
  • Does not include closed-end issuers
  • Closed-end issuers may elect to be licensed as and investment fund.

Licensor
A Professional Fund must be licensed by one of:

  • Unrestricted Fund Administrator:
  • Same day once all documents approved by relevant parties (sponsors, lawyers, administrators) and due diligence is complete
  • Securities Commission of The Bahamas: Within 72 hours of a complete application and letter from the Bahamas administrator or legal counsel indicating the Investment Fund is in compliance with Bahamian Law

Eligible investors

  • A bank or trust company licensed in The Bahamas or licensed pursuant to the laws or another jurisdiction
  • A securities firm registered in The Bahamas or registered pursuant to the laws of another jurisdiction
  • A Bahamian investment fund or investment fund regulated pursuant to the laws of another jurisdiction
  • An insurance company licensed in The Bahamas or pursuant to the laws of another jurisdiction
  • Natural person (jointly w/ spouse) with a net worth of $1,000,000
  • Natural person who had minimum income of $200,000 for the last 2 years ($300,000 w/ spouse) and has reasonable expectation of same for current year
  • A trust with minimum $5,000,000 in assets
  • An entity owned by any one of the above
  • An entity with net assets in excess of five million dollars

Structures
Company (including Segregated Accounts Company), Limited Partnership, Unit Trust.

Requirements

  • Bahamian administrator – delegation to foreign sub-administrator is acceptable.
  • Accounts prepared in accordance with international accepted accounting standards (or other recognized GAAP).
  • Prescribed disclosure requirements in the offering memorandum.

These are in line with best industry practices.

Open architecture

  • No local auditor requirement
  • No local custodian requirement
  • No restrictions on investments or investment style
  • No restrictions on leverage
  • No direct taxation. Therefore no tax on income, capital gains, dividends earned by the fund or investor
  • No stamp duty on transactions
  • No public disclosure of investors or the accounts
  • No exchange controls.

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As a well-regulated and responsible international financial centre, there exists mechanisms or gateways pursuant to various statutory measures by which financial information in The Bahamas may be accessed by foreign judicial and/or regulatory authorities, subject to appropriate safeguards.

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