The Bahamian "SMART" Fund (formally known as Specific Mandate Alternative Regulatory Test Fund) represents a flexible yet regulated investment fund product.
By way of background, there are no predefined regulatory criteria for SMART Funds; instead, the Investment Funds Act authorizes the Securities Commission of The Bahamas (the "Commission") to establish the rules and requirements applicable to each category of SMART Fund. Whilst seven SMART Fund models have been authorized to date (with six of those models in use), this approval structure facilitates the continued evolution of new SMART Funds to meet market demand.
Two of the most commonly used models are (i) SFM Model 004 which is limited to no more than five investors, where the annual audit can be waived with the consent of all of the investors and a term sheet is optional and (ii) SFM Model 002 which is limited to no more than 10 investors (all of whom must be professional or accredited investors), requires a term sheet and the audit requirement can be waived. It is anticipated that SFM Model 007 (or the super qualified investment fund), which was approved for use in August, 2012, will rapidly increase in popularity; a single investor is expressly permitted, the maximum number of investors is 50, there is a minimum investment of US$500,000 and the administrative functions can be outsourced to any reputable person in a jurisdiction (which not be The Bahamas) on an as needed basis.
The attractive features of a SMART Fund include (i) the ability to utilize a term sheet instead of a traditional lengthy offering memorandum resulting in lower startup costs than for a traditional investment fund, (ii) the ability to waive the requirement for an annual audit with the unanimous consent of the investors, (iii) the certainty of regulatory oversight through the licensing regime and (iv) prompt licensing by an administrator with an unrestricted license, under delegated authority from the Commission, subject to compliance with anti-money laundering requirements and fit and proper thresholds by service providers in accordance with international best practice on the prevention and detection of money laundering and counter terrorist financing.
SMART Funds have been used (i) by financial institutions, financial advisors and family offices as a part of the wealth planning structures for private clients, (ii) by investment managers or promoters as a cost effective regulated structure to establish a track record or showcase a new investment product or strategy and (iii) by investors in jurisdictions where external investments are only permitted where they exceed a specified amount.
In summary, the SMART fund regime provides a framework for the ongoing development of innovative investment fund solutions which are responsive to clients' needs whilst subject to regulatory oversight.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.