The Bahamas' Investment Funds Act, 2003 provides the regulatory framework for establishing, administering and managing investment funds in The Bahamas. For those unfamiliar with the Act, understanding when it applies to you depends on understanding what an investment fund is and what it does.
The Investment Funds Act defines an investment fund as a unit trust, a company, a partnership or an investment condominium that pools investor funds “with the aim of spreading investment risks and achieving profits or gains arising from the acquisition, holding, management or disposal of investments.” (Investment Funds Act, 2003, Sect. 2.) Investors acquire equity interests in the investment fund which entitle them to participate in the profits or gains of the investment fund. These equity interests can be redeemed or re-purchased at the option of the investor.
Unit trusts that fall under the Act must either be governed by the laws of The Bahamas or have a trustee or investment fund administrator who has a place of business in The Bahamas or is incorporated or registered here. In the case of companies which are investment funds, they must either be incorporated or registered in The Bahamas or be administered by a company incorporated or registered or having a place of business or an address in The Bahamas. For partnerships, at least one of the general partners must be incorporated, registered, or reside in The Bahamas, or the partnership articles must be governed by the laws of The Bahamas. Investment condominiums must be established and registered in The Bahamas to fall within the provisions of the Act. The Act does not regulate closed ended funds which are unit trusts, companies or partnerships whose equity interest holders cannot redeem their interests or require their repurchase.
Generally, investment funds are structured as one of the following business entities: an international business company, a segregated accounts company, an exempted limited partnership, a unit trust, or an investment condominium. Each of these entities has advantages depending on the investments held by the entity, the geographical location of investors and investors' goals.
The Act permits four different types of investment funds to be organized. Standard funds allow an offering to the general public. Professional funds are targeted to sophisticated and institutional investors. Recognized foreign funds are licensed in other jurisdictions outside The Bahamas but choose to register in the country to facilitate an offering here. SMART funds accommodate a variety of investment scenarios by applying varying regulatory and licensing requirements to seven different fund “templates”. (Investment Funds Act, 2003, Sect. 3.)
All investment funds must make required disclosures, including their valuation of assets, subscription and redemption policy, and method of calculation of the net asset value or NAV. They must issue an offering memorandum and conduct an annual audit, issuing financial statements. Many funds appoint a custodian and an administrator to hold and administer assets. Despite these requirements, investment funds may hold many different types of investments for the benefit of their investors. Additional regulatory control is exercised through a licensing scheme implemented by the Securities Commission of The Bahamas (SCB). Investment fund administrators who hold an unrestricted licence (UIFAs) may license funds offered to accredited investors and for which they act as investment fund administrator and provide the principal office. The SCB on the other hand can license all types of funds.
To learn more about investment funds in The Bahamas, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.