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Hedge Fund Monthly
 

SMART Funds: The Bahamas’ Innovative Creation to Investment Vehicles

Paul Winder, Managing Director
ATC, The Bahamas 
December 2011
 

A number of years ago, in order to further enhance the growing financial service sector in The Bahamas, which has contributed significantly to the country’s developmental progress, the government enacted legislation that would cater to the investment needs and interests of sophisticated investors interested in a stable economy. The proposed legislation was designed to allow considerable flexibility for its promoters but with an appropriate level of governance. The platform, the Investment Fund Act 2003 (IFA), created four classes of funds, including the Specific Mandate Alternative Regulatory Test Fund, hereinafter referred to as ‘SMART Funds’.

What are SMART Funds?

SMART Funds are defined in the IFA as an investment fund established by the Securities Commission of The Bahamas that “satisfies certain prescribed parameters and requirements of a category, class or type of investment fund previously approved by the Commission”.

However, in addition to such statutory definition, SMART Funds are also commonly described as a group of investment vehicles that provide for more straightforward and effective formation by limiting the documentation required. With this in mind, a term sheet would suffice as opposed to the submission of a prospectus, thus enabling innovative and adaptable structuring solutions, but without regulatory or financial drawbacks (as, for example, in the case of retail hedge funds).

What purpose do SMART Funds serve?

The main purpose of the IFA, as it relates to SMART Funds, is to grant authority to Unrestricted Fund
Administrators (UFAs) to establish funds which provide an alternative for accredited investors and intermediaries who do not fit into a specific classification, thus enabling an alternative mandate for their regime. However, it is critical to bear in mind that despite the accommodating nature of the licensing procedure, it is a fundamental requirement that the fund comply with the stipulations set out in its constitutive documents and the fund must remain compliant with Bahamian law, notably the Investment Funds Act and the relevant Anti-Money Laundering legislation.

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