On August 10, 2012 Mrs. Tonya Galanis, Chairman of the Securities Commission of The Bahamas signed The Investment Funds (SMART Funds) SFM007 Rule, 2012 creating the latest template within the SMART Fund regime in The Bahamas.
Technically known as the Specific Mandate Alternative Regulatory Test Fund, the SMART fund in 2003 marked a departure from established protocols and introduced a product designed specifically for the private wealth management industry; regulated, innovative and unencumbered by comparison with anything that had come before. The Investment Fund Act and Regulations Act 2003 established a high quality, rigorous regulatory regime for Bahamas Funds but recognised that not all funds required the same degree of direct supervision and that some requirements, appropriate for traditional funds, may be superfluous for structures which amounted to a private investment scheme.
The SMART fund programme introduced two radical new concepts:
1) Whilst the requirements for qualification for a standard or professional fund are clearly defined within the law, the specific requirements for a SMART fund license are defined on a case by case basis by means of approved templates, each of which creates a new SMART fund model.
2) The number and type of SMART funds remains an open group. There exists therefore a mechanism for promoters to approach the regulator for approval of a specific style of fund and for that fund, if approved, to be allocated a risk based licensing and supervisory regime tailored for it sole use.
With the promulgation of the seventh Bahamian SMART Fund template, dubbed the “Super Qualified Investor Fund” (or SFM007) , the regime is significantly expanding the possibilities for using SMART Funds more generally as private placement funds. The Super Qualified Investor Fund may be offered on a private placement basis to up to fifty (50) “super qualified” investors who must make a minimum initial investment of US$500,000. This investor-centric fund model is designed around “super qualified investors” in order to more precisely accommodate professional asset managers, institutional investors and ultra high net worth individuals, all of whom stand to benefit from the risk-based approach to structuring and operating private placement funds available in The Bahamas.
Similar to the other SMART Funds, SFM007 can be set up and licensed in a matter of weeks (post due diligence), and the audit requirement may be waived with the unanimous consent of all investors. Additionally, a concise term sheet may be issued, although the fund always has the option to adopt a more elaborate private offering memorandum, depending on the size and profile of the investor base. What makes this SMART Fund model stand apart from the others, other than the expanded investor pool, is that the appointment and location of the fund administrator will be the choice of the directors, similar to the appointment of a custodian. Such dynamics are crucial because these decisions tend to be driven by many factors, including the fund’s investment strategy, investor profile, cost, time zone, etc. In addition, the administrative functions may be expressly contracted by the SFM007 to any reputable service provider in any approved jurisdiction on an “as needed basis”. Thus, any functions not so delegated remain the responsibility of the directors. For example, a fund may appoint a net asset value calculator in Brazil (e.g. a family office), a Cayman-based registrar & transfer agent, a Bahamian independent director, and perform all of its trading and custody with a Swiss bank.
Such a robust set up enhances efficiency and transparency, while ensuring compliance and offsetting counterparty and jurisdictional risk . In a nutshell, the SMART Fund Model 007 represents the right balance between delivering bespoke wealth management solutions to sophisticated clientele, while adhering to appropriate regulatory requirements within a risk-based supervisory environment.
SMART Fund Model 007 was designed and promoted by Brian Jones, Associate Director and Authorised Specialist at UBS (Bahamas) Limited. Brian points out,*”A private placement fund may invest in traditional or alternative investments, and its objective may be simple or complex. On one hand, the SFM007 may serve to facilitate a complex solution such as serving as the offshore counterpart in a cross-border compliant master-feeder fund structure. This set up allows onshore funds to achieve access to global markets via a regulated investment vehicle in order to diversify their onshore portfolios. On the other hand, the SFM007 is simply ideal for a private placement fund with a single “plain vanilla” strategy, open to one or more investors.”*
He adds, *“The rising “smart money” demand for alternative
investments is driving the creation of more user-friendly,
turn-key investment fund solutions for complex money
Editors Note: Extracted in part from the SFM007 article appearing in the current edition of [GATEWAY](http://www.bfsb-bahamas.com/financialreview.php) – The Bahamas Financial Review.