Investment (hedge) funds in the Bahamas
How to create a hedge fund properly in Bahamas or Cayman Islands, where is better to register a hedge fund in offshore zone - the answers to all of these and other questions can be found on this page.
The Bahamas is one of the most innovative and flexible jurisdictions for creating offshore investment funds.
The Bahamas provide a large selection of investment and hedge fund types, and also do not have legislative restrictions on the investment strategy or facilities that Bahamian funds can invest.
At the same time, the legislation on investment funds in this jurisdiction fully complies with all world standards. This makes hedge funds in the Bahamas not only a modern, but also a very reliable, prestigious investment tool.
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The popularity of Bahamian investment funds is largely facilitated by very attractive taxation and the availability of recognized international stock exchanges in the Bahamas: Bahamas International Securities Exchange (BISX).
Types of investment (hedge) funds in the Bahamas
The main types of investment funds in the Bahamas are:
- Professional Funds
- SMART funds, including 7 different models of funds.
- Standard Funds
- Recognized foreign funds (foreign licensed funds certified for work in the Bahamas)
Organizational and legal form of the investment fund in the Bahamas
Depending on the legal structure (organizational and legal form), investment forms in the Cayman Islands can be divided into the following types:
1) International Business Company. The so-called International Business Company is the most common basis for the establishing of an investment fund. There are many reasons for this: tax exemptions in the Bahamas, a fast and inexpensive registration process, and high flexibility in organizing the internal structure of the company.
2) Segregated Accounts Company. A company with segregated accounts can divide its assets and liabilities into several legally independent portfolios, but it remains as a single legal entity. SAC is excellent option for investment funds, which are built on the so-called type of "umbrella". This allows a better protection of the company's assets from potential claims, since the liability within a separate portfolio of an investment company cannot extend to assets from other portfolios or the total assets of an investment fund.
3) Exempt limited partnership (ELP). ELP is governed by a partnership agreement in which one partner (general partner or GP) owns the assets of all partners, makes deals on behalf of limited partners and either invests on behalf of its partners or appoints third parties who act on its behalf.The General Partner (GP) has an unlimited liability for partnership obligations (if there is more than one general partner, they will have joint responsibility for partnership debts), but limited partners are liable only within the amount they have invested in accordance with the terms of the partnership.
Since the terms of the partnership agreement are mostly limited only to the terms agreed by the parties, this is a particularly flexible investment tool, which makes this form of investment funds in the Bahamas no less popular than the classical companies.
4) Unit trust. A unit trust is a type of trust in the Bahamas based on a trust management agreement that is used to make collective investments. Each investor buys "shares" (units) in the trust, which, depending on the provisions of the trust management agreement, can be sold and redeemed (as shares of the company).The trustee (usually a specialized professional trust company) invests the assets of the trust using a strategy that is consistent with the objectives and limitations set in the trust management agreement, or delegates this role to the investment manager. Since the trust management agreement is a private agreement, it can be adapted to the specific investment objectives.
5) ICON funds, or Bahamas Investment Condominium. ICON is defined as the contractual relationship existing between one or more investors (called participants), according to which investors agree to pool assets for the purpose of investing these assets in the form of a collective. Then the structure is licensed and fully regulated as an investment fund.
ICON is a new kind of structure for hedge funds that can be licensed as a SMART Fund, a Professional Fund or a Standard Fund in the Bahamas, which is targeted at investors and financiers from Brazil and Latin America.
ICON is not a company, not a partnership, and not a trust. This is a mechanism for pooling assets and an operating tool for investment funds in the Bahamas.
For European investors, this type of collective investment is well known, as far as the contractual collective investment is not a new thing for Europe.
The main advantage of the Professional Fund in the Bahamas is the fast establishing. After submission of all of the necessary documents, to the decision of issuing a license for a Professional fundis taken within 72 hours.
The professional fund is focused on professional, "qualified" participants and investors. Investors in the Professional Fund may be:
- Licensed banks or financial institutions
- Registered securities traders and investment consultants with authorized capital of at least USD 120,000
- Insurance companies
- Investment funds
- Private investors (individuals) owning USD 1 000 000
- Private investors (individuals) with an annual income of USD 200,000
- Trusts with a capital of USD 5,000,000
At the same time, there are no requirements to the minimum amount of contributions for such participants.
SMART funds represent 7 different models of funds for experienced investors, which allow to resolvea wide range of tasks - from using as investment tools, to protecting assets.
Features of the basic models of SMART investment funds in the Bahamas:
1. SMART model 1 (SMF001)
It is a simple and reliable tool for collecting and managing investments for professional financiers, brokers and other financial institutions.
- A promoter (founder and fund manager) is a financial institution.
- The investor is a client of the promoter and is a party to the Discretionary Management Agreement.
- Audit is not required.
- Limited disclosure requirements.
- Half-year period for reporting the fund, if not audited.
2. SMART model 2 (SMF002)
It is a kind of fund-incubator and perfectly suited for quick entry into the market, because it can be licensed within 24 hours from the date of submission of the relevant documents.
- A maximum of 10 professional (qualified) investors, to whom a Professional Fundcan be offered
- Audit is not required.
- Limited disclosure requirements.
- Half-year period for reporting on the fund, if not audited.
3. SMART model 4 and 5 (SFM004 и SFM005)
Investment funds with five investors, acting as a private investment company. It can also be used as a licensed holding company. They provide only private placement of shares, may have a separate administrator or transfer administrative functions to the director. Audit is not required.
Standard investment funds and professional investment funds in the Bahamas have common requirements, except that Standard funds allow you to subscribe for shares to any type of investors. The basic requirements for the Standard Funds in the Bahamas are:
- Annual audit
- Administrator (except for self-administered funds)
- Independent depositary
- Memorandum of Proposal (certified by an administrator or a Bahamian attorney)
- Submission of reports to the Securities Commission of the Bahamas
- Standard investment funds in the Bahamas are "default funds" - any fund that does not meet the criteria of the
Professional, SMART or Recognized Foreign Fund automatically hits this category.Since all types of investors, including unskilled (non-professional), can invest in these funds, they are the most regulated type of investment fund and can be licensed only by the “Securities Commission” of the Bahamas, in contrast to professional and SMART funds that can be licensed by Fund administrators.
Requirements for the management of the investment fund in the Bahamas
The minimal number of Directors for funds in the Bahamas is two. Directors of investment funds in the Bahamas must meet certain requirements - have sufficient experience to manage the fund, appropriate education, business reputation and financial independence.
In addition, it is common practice to appoint a depository (custodian), administrator, main broker (prime broker), and an investment manager. Although all these positions are not mandatory for certain types of fund, but their appointment has an important reputational component and will greatly facilitate both the registration of the fund itself and further activities, as well as opening a bank account.
An investment company, registered in the Bahamas or in other jurisdictions, may act as an investment manager of the fund. If this company will provide the Investment Manager services exclusively for one investment fund, then this company does not need to obtain a separate license.
The cost and timing for an investment fund establishingin the Bahamas
Due to the large number of possible options for the structure and types of investment and hedge funds in the Bahamas, as well as possible related services, it is impossible to unequivocally determine the cost and timing of the fund's registration.
In order to find out the approximate timeframe and budget for the registration of an investment fund in the Bahamas, it is necessary to individually consider the requests of each client. Obtaining a license from an investment fund in the Bahamas is not just a registration of an offshore company, it is a lengthy process that can take from 2 up to 8 months depending on the type of fund that is being registered.
SBSB specialists will be happy to help you with all the questions on registration of the investment fund in the Bahamas.
We will offer you a large selection of countries where we have experience: Bahamas, Cayman Islands, British Virgin Islands, Jersey, Malta, Luxembourg.
For over five years SBSB has been consulting our clients, CIS residents, in the field of corporate law, international tax planning, finance, international licensing and integrated business support in more than 40 countries.