SMART funds offer new opportunities for wealth management

Date: Tuesday, February 19, 2008
Author: Hedgeweek.com

The Bahamas moved into the international financial services business as long ago as the 1930s and was a pioneer of the offshore funds sector. Building on its long history of providing investment fund services, the country has taken measured steps over the past 10 years to differentiate itself from other jurisdictions by creating a mechanism that allows promoters to establish different types of funds with more flexibility and appropriate levels of governance.

The Bahamas has always been conscious of the need for a strong corporate governance environment alongside a regulatory framework that protects investors while allowing financial and structural innovation to flourish. The jurisdiction offers a dual licensing regime, with the Securities Commission of the Bahamas (SCB) authorised to license all classes of funds, while unrestricted fund administrators may license Professional and SMART funds offered only to accredited investors. Irrespective of the licensing procedure, the fund must adhere to the stipulations of its constitutive documents and to Bahamian law, notably the Investment Funds Act and anti-money laundering legislation.

The 2003 act established the SMART Fund to offer industry participants the means to provide clients with innovative and flexible structuring solutions through a regulated vehicle, domiciled in a respected international financial centre. For example, funds that are essentially private vehicles can benefit from light-touch supervision appropriate to their limited and specialised nature rather than undergo 'broad brush' regulatory treatment.

The legislation envisages the use of fund templates approved by the regulator. Five SMART Fund templates have been approved, but if investors or promoters require a different model, they can seek approval from the SCB for their own SMART fund structure. If accepted this will be published as a new SMART Fund template that may be used by other promoters in the future. Using existing templates, promoters can have their funds licensed on the same day through an unrestricted fund administrator, allowing a fund to be marketed within 24 hours of company incorporation, due diligence and the completion of licensing procedures.

The SMART Fund was devised following the identification of Latin America as a region in which the Bahamas as a jurisdiction is well placed to compete effectively and an analysis of  its requirements, including the recognition that a one-size-fits-all solution is not suitable for Latin American clients.

There are strong existing ties, starting with the islands' location off the Florida coast, close to the Latin American business hub of Miami, and the long-established private wealth management sector. Many banks in the Bahamas have a strong brand presence in the region, and the jurisdiction is home to large operations of leading Latin American banks. In addition, intermediaries from Latin America regularly take part in the Bahamas Briefings programme involving detailed discussions and presentations on developments in the industry.

SMART Funds offer an excellent tool for seed capital to fund new strategies.  Small groups of qualified investors such as a single or multi-family office can use SMART funds to access leading managers while implementing estate-planning arrangements.

While funds domiciled in the Bahamas must have a Bahamian fund administrator, certain functions can be delegated to another licensed financial institution, a provision that may be particularly useful to a client with established relationships with financial institutions in his home country. This also applies to the auditing of the fund.

Wendy Warren is executive director and chief executive of the Bahamas Financial Services Board