The Bahamian Investment Fund As A Pooling Strategy For Public Participation

LionPress Spring 2020 Issue

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The "Standard Fund" as a Pooling Mechanism for Public Participation

Investment funds are a useful tool for pooling public interest and financial support for projects of a capital intensive nature and in general. In many cases, public goods require a colossal expenditure in order to create the atmosphere that is ideal for businesses, customers and the general public. A great burden is made light by many participants, hence the logic behind a Standard Fund for such purposes. Equity as an unrestricted investment funds administrator of the Securities Commission of the Bahamas (SCB) and an authorized agent of the Central Bank of The Bahamas (CB) is perfectly aligned to provide Standard Fund formation and administration services. The Standard Fund is an ethical strategy not only achieving the goal of obtaining the requisite funding for the project at hand, but allows for transparent public participation and ownership in the project, making the public personally vested in the success of the project. Bahamian public participants can consider themselves “owners at home, rather than tenants”, as the saying goes. Logistically, for practically and manageability reasons, it is also an ideal structure for pooling resources as compared to managing each individual investor directly within a company.

A notable local example of a Standard Fund at play to create public partaking is the Bahamas Investment Fund (BIF) which was formed to raise the capital for the Nassau Cruise Port’s transformative modernization, located on Prince George Wharf in Downtown Nassau, The Bahamas, being the country’s main cruise port seeing in excess of an estimated 200,000 tourists per month. As noted on the Nassau Cruise Port’s website, “Tens of thousands of Bahamians will have an opportunity to invest in the Bahamas Investment Fund (BIF) to facilitate broad-based Bahamian ownership in this venture. Through the public offering of these shares, we will create the largest investment opportunity of its kind that has been launched in The Bahamas to date.” Public private partnerships are smoothly enabled through Standard Funds, and in the case of BIF, with the assistance of the fund it will allow Bahamians to own a majority interest in the company that will own the project Nassau Cruise Port Ltd.

As there are many types of funds in the Bahamas, ranging from Professional Funds to Recognized Foreign Investment Funds, Bahamas Investment Condominiums (ICONs) to the suite of SMART (Specific Mandate Alternative Regulatory Test) Funds, the Standard Fund has set itself apart with a unique set of characteristics. The Standard Fund was legislatively created by the Investment Funds Act (IFA) in anticipation of public offerings. It is more regulated yet modern. While licensed unrestricted investment fund administrators with SCB such as Equity may license Professional and SMART Funds independently, the fitness and properness of Standard Funds are considered exclusively by the SCB for licensing. Standard Funds can be administered, however, by a licensed investment funds administrator such as Equity. One wishing to apply to the SCB for Standard Fund licensure may also choose to engage an experienced administrator for preparation services of the application that is submitted.

As defined within the IFA, “Standard Fund means an investment fund that does not satisfy the requirements of a professional fund, a SMART fund or a recognized foreign fund”. Nonetheless, an investment fund which qualifies to be licensed as a professional or recognized foreign fund can elect to be licensed by the SCB as a Standard Fund. The open parameters of a Standard Fund allows for the possibility of an unlimited amount of public participants in the fund at any set starting share value for the fund, potentially even accommodating a $1.00 buy-in. The directors and promoters of a Standard Fund may like to consider the minimum buy-in being sufficient nevertheless to accommodate for reasonable administrative fees. The ubiquitous requirement for investment fund administrators to conduct Know Your Client due diligence for each investor for anti-money laundering and counter financing of terrorism considerations has cost implications on onboarding and compliance fees for each new subscriber into the fund.

Standard Fund administration includes handling subscriptions into the fund, redemptions out of the fund, preparation of regular financial statements for fund investors (reflecting the current Net Asset Value of fund shares), and general compliance screening services for on-boarded funds and investors. During the formation phases of the fund, services include hand-holding in the completion of questionnaires for the refinement of the features, parameters and rules of the fund, and ultimately the preparation of the Offering Memorandum of the fund and the application to the SCB for licensing.

The professional support of an investment funds’ administrator frees you to have single mindedness in handling the execution of your project, with the peace of mind that your investors receive regular financial statements to stay abreast. It also allow you to pass on investors to go through the formal onboarding process with your investment fund administrator, which can make the investing process easier to manage with fluidity. Record keeping is organized and regular financial reports keep your on top of your financial affairs for audits and other matters and regulatory responsibilities.

Investment funds also create new positions that are available for expanding the fiduciary oversight of the Standard Fund and project to ensure it is effectively managed, separate and apart from within the project directly, and accordingly creates new remuneration channels for these roles. For instance, a qualified investment manager (IM) may be assigned to assist with directing decisions on the best employment of the capital raised. Assisting investment fund advisors (IFAs) can also be assigned who have specialized competences in giving relevant insights and advice. These positions may attract fees for responsibly managing the investment fund’s resources, inclusive for instance of performance fees. In the event that the IM, IFA and directors of the fund will also be involved directly in the underlying company in which the fund will invest, it is critical that this is made abundantly clear in a transparent and conspicuous manner within the Offering Memorandum and to all investors.

Generally, investment funds are endowed with the benefits of simplifying investor relations and corporate administration. The investment fund is likely to be the investor in the underlying capital project directly as opposed to a multiplicity of single individuals, representing one line on the schedule of shareholders of the company that owns the project. There is also an element of credibility and reputability that is added given the formality of an investment fund that is licensed and regulated by the SCB, which may make it more palatable for investors to trust.

Standard Funds are a suitable choice for experienced entities as well as for the Government of The Bahamas when considering large capital projects for the benefit of the public.

“Equity stands ready and able to offer investment funds’ services to qualified entities with well-defined plans that will provide rewarding and credible investment opportunities to the general public. Please get in touch to start the conversation” says L. Michael Dean, Managing Director of Equity Investment Funds Services Ltd.

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