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What is a SMART Fund?

Posted by M. Margaret Gonsalves-Sabola | Dec 05, 2017 | 0 Comments

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SMART funds are a type of investment fund with flexible structures and reporting requirements. “SMART” stands for Specific Mandate Alternative Regulatory Test, meaning that each of several “templates” used for SMART funds is designed with a specific purpose in mind, regulation of the fund is adjusted to the risk profile of the fund, and fund promoters can create new templates to propose to the Securities Commission of The Bahamas if they wish.

Currently, there are seven approved templates or SFMs for SMART funds:

SMART Fund Model 001 (SFM 001)

The promoter of the SFM 001 is a financial institution and the investors are customers of the financial institution. Investors must be parties to a Discretionary Management Agreement with the financial institution.

SMART Fund Model 002 (SFM 002)

The investment fund has a maximum of ten investors who hold equity interests in the fund. The investors in the SFM 002 must be eligible investors for professional funds, and a majority of the investors have the power to appoint and remove the fund's operators. The SFM 002 can be both licensed and launched on the same day if needed.

SMART Fund Model 003 (SFM 003)

This SFM 003 is a fund that was operating as a mutual fund exempt under the provisions of section 3(4) of the Mutual Funds Act 1995 at the time of the repeal of that Act.  The SFM 003 has a maximum of fifteen investors who hold equity interests in the fund and a majority of its investors have the power to appoint and remove the fund's operators.

SMART Fund Model 004 (SFM 004)

The SFM 004 has a maximum of five investors, and it operates as a private investment company. As a result, it may be used as a holding vehicle for investments.

SMART Fund Model 005 (SFM 005)

The SFM 005 has a maximum of five investors who hold equity interests in the fund, and it operates as a private investment structure for individuals and/or families. The investors in the SFM 005 must be eligible investors for professional funds, and the administrator of the fund must be a financial institution. This type of fund can be both licenced and launched on the same day if needed.

SMART Fund Model 006 (SFM 006)

Unlike the other SMART Fund Models, SFM 006 is a special purpose vehicle designed to hold no more than 30 percent of the assets of another Bahamas investment fund. Assets held in this type of fund usually include hard-to-value assets or those assets that cannot easily be sold for cash without losing substantial value. Using this SMART Fund Model results in lower administrative burdens and costs, and investors and creditors of the original investment fund retain their ownership rights.

SMART Fund Model 7 (SFM 007)

The SFM 007 is an investment fund that may be offered to a single investor or up to a maximum of 50 “super-qualified” investors on a private placement basis. Each investor must contribute a minimum of US $500,000 initially. Although individuals and private companies can invest in this type of fund, it has been used mostly for pension funds and “master feeder” or meta-fund structures. It is also used by investors in Latin America who want to diversify their portfolio and hold assets offshore. Administrative functions of this type of fund can be contracted to a service provider in another jurisdiction as needed.

All SMART funds have a few characteristics in common. Generally SMART funds have a maximum number of investors. If in unanimous agreement, investors may waive audit requirements in favour of filing performance reports. Finally, instead of a lengthy term sheet, investors may adopt a streamlined one as long as it provides the appropriate disclosures to investors.

To find out more about SMART funds, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.

About the Author

M. Margaret Gonsalves-Sabola

M. Margaret Gonsalves-Sabola is a civil and commercial litigation attorney and an accredited civil and commercial mediator. Margaret has over 21 years' experience in legal practice in the United Kingdom, Jamaica and The Bahamas.

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