Starting a Hedge Fund in the Bahamas
Updated on Friday 17th May 2019
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The Bahamas represents one of the leading investment markets at a global level for setting up a hedge fund startup. The legislative framework under which the Bahamas investment funds operate is the Investment Funds Act 2003, which prescribes four classes of vehicles. The Act offers the possibility of setting up the SMART fund, a type of vehicle designed for hedge fund activities.
What are the main types of funds in the Bahamas?
As we presented above, one of the ways of setting up a hedge fund startup in the Bahamas is by registering a SMART fund. Being known as a top investment destination, Bahamas provides a very flexible investment law and thus, investors may also choose to set up a professional fund, a standard fund or a recognized foreign fund; the latter refers to an investment vehicle that was incorporated in another jurisdiction than the Bahamas and which received a license for investment activities in this country.
What are the legal entities for funds in Bahamas?
Hedge funds startups, as well as any other type of investment vehicles, need to be incorporated under one of the legal entities designed for this purpose. The Bahamas legislation provides several options regarding the legal entity of the fund and foreign businessmen can set up one of the following:
- international business company – it represents one of the most common ways to incorporate a fund in the Bahamas;
- segregated accounts company – under this structure, investors can carry out multiple, separate portfolios;
- ICON funds – it is set up as a contractual relation between the investors of the fund;
- unit trust – it is incorporated based on a trust management agreement and it is usually employed for collective investments;
- exempt limited partnership – it is set up through a partnership agreement in which one of the investors holds the assets of the other businessmen and makes investment deals on their behalf.
The ICON fund refers to a Bahamas Investment Condominium fund, which can be registered as a hedge fund startup and it represents a very flexible structure, in the sense that it can be registered and licensed as a SMART fund, a professional fund or as a standard fund. The structure is basically used for collective investments.
The ICON fund generally needs an investment manager, a governing administrator, a general administrator and a custodian in order to be able to operate in the Bahamas. This type of fund was created in order to sustain the interests of Brazilian investors, as well as those from other Latin America jurisdictions, by providing a similar investment legislation that is available in those countries. It represents a newer investment structure available on this market, as it was launched in 2014.
Who can start a professional fund in the Bahamas?
Who can start a professional fund in the Bahamas?
One of the ways to enter the local market, for those who want to know how to start a hedge fund, is by registering a professional fund. A professional fund in the Bahamas has multiple advantages – for example, its registration is straightforward.
Provided that the investors have submitted all the documents necessary for licensing on the local market, the license can be issued in a period of 72 hours. Besides this, the fund is addressed to a wide category of investors (as long as they are qualified or professional investors). The professional fund is addressed to the following:
- financial institutions, licensed banks, as well as insurance companies;
- it can also be started by security traders who have obtained a license, but also by investment consultants;
- security traders and investment consultants need to invest a capital of minimum $ 120,000 to be able to register a professional fund;
- the fund is also addressed to private investors and to other investment funds;
- in the case of private investors registering a professional fund, they need to provide evidence on their financial capabilities;
- thus, the fund can be registered by private investors who have an annual income of minimum $ 200,000 or by investors who have at least $ 1 million.
In order to register a professional fund as financial or banking institution, it is necessary to have received an authorization from the Central Bank of Bahamas (if the investor is a tax resident of the country) or from another similar institution located in a foreign country.
SMART funds in the Bahamas
The SMART funds were created by the local authorities in order to simplify the registration procedure, which usually requires a large set of documents that have to be submitted with the relevant institutions. The main characteristics of the SMART funds in the Bahamas is represented by the fact that they benefit from a straightforward registration and a reduced number of registration documents.
Foreign businessmen interested in the procedure on how to start a hedge fund in the Bahamas may choose from several types of SMART funds models (seven, more exactly), designed for specific categories of businessmen and investment activities. The SMART funds can receive a rapid authorization on the local market, by licensing the Unrestricted Fund Administrators operating in this jurisdiction. Some of the main requirements for SMART funds are presented below:
- regardless of the SMART fund model chosen by the investors, it is necessary to appoint minimum two directors;
- SMART funds need to keep financial statements, but only two models need to complete an annual audit (available in the case of the SMART fund 1 and 6);
- all the SMART funds models need to be licensed in order to operate in the Bahamas;
- they also need to have a custodian appointed and a licensed administrator (the latter is necessary for SMART funds 1 and 2);
- most of the SMART funds in the Bahamas do not need to be set up by qualified investors, this requirement is applicable only in the case of the SMART fund 5.
Types of SMART funds in the Bahamas
The legislation regulating the investment market in the Bahamas provides seven types of SMART funds, created to fit specific business scenarios that are met here. The requirements for the procedure on how to start a fund vary greatly depending on the model chosen by the investors. For example, a SMART vehicle operating as a hedge fund can have different requirements based on the number of investors (the funds can be set up with maximum 5, 10 or 15 investors or more).
One of the models for SMART funds can be set up with maximum 5 investors and it may operate as a private investment company. In another case, the SMART fund can be set up by up to 50 investors who should comply with the requirements for “super-qualified investors”, one of the criteria being to invest a minimum of $ 500,000 in the fund (the minimum value subscribed by each investor). Foreign businessmen can address to our team of affiliates in the Bahamas for more details related to the registration of a hedge fund.