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Investor funds staying on top

Act breeds new funds and protects investors

Investor funds staying on top
Act breeds new funds and protects investors

Thanks in large part to the Investment Funds Act, 2003, which updated and simplified the funds regulatory system, a variety of new investor-friendly funds are now available in The Bahamas.

The Act, amended at the end of last year, also established enhanced investor protections and set world-class standards for fund operations. One of the major accomplishments was to succinctly define what an investment fund is. The Act says a fund must:
• have a connection to The Bahamas and be governed by Bahamian law; and
• issue an equity interest that allows investors to participate in profits and redeem their investment on demand.

As well, the Act says the underlying purpose of the fund must be to pool investor funds to spread risk and generate profits.

Mutual fund options
Mutual funds have been popular for decades. Most offer diversity, expert money management and reasonable fees. There are dozens of brand names, but they fall, generally, into three categories:
• growth funds take more risks than others, seeking appreciation above all else;
• balanced funds, also known as growth and income funds, seek income and growth opportunity; and
• income funds, also known as bond funds, seek income and safety of principal.

Since the worldwide economic recession of 2007-09, the more aggressive growth-oriented mutual funds have changed their strategies to fit the times. Most notably, they have increased their relative holdings of fixed-income investments, such as government bonds and guaranteed mortgages. This has helped growth funds maintain stability, while still capturing some appreciation.

Income oriented funds have not changed their tried and true formula. These conservative funds are invested heavily in government and corporate bonds, commercial paper and some dividend-paying preferred stock. Most income funds strive to give investors a return of at least the prime rate plus a half point.

New wrinkle
In 2008, the Royal Fidelity Merchant Bank and Trust introduced a new mutual fund in The Bahamas. This family of mutual funds, TIGRS (Total Index-Linked Global Return Securities), marked the first time that Bahamians were able to invest internationally, using Bahamian dollars, without approval from The Central Bank of The Bahamas.

The same permission applies to non-Bahamian residents who hold Bahamian funds in a bank account.

Investors can choose from among several TIGRS funds, depending on their investment objectives.TIGRS guarantee to protect 100 per cent of an investor’s principle and at the same time offer opportunities for appreciation.

Fidelity’s mutual fund manager, Joseph J Euteneuer, offers five TIGRS funds, each with a distinctive objective. “We believe modern markets require both a nimble touch and diversity,” says Euteneuer, “and our TIGRS allow that.” However, Euteneuer noted that he would not be proceeding with a proposed sixth TIGRS fund in the final quarter of 2011, due to the aversion of investors to risk in the face of continued uncertainty in the global economy.

Another entry in the fund arena is the SMART fund, which first debuted in 2003 with the passage of the Investment Funds Act. This fund is more of a private placement investment vehicle, geared to sophisticated, high-net-worth investors.

Key to its success is a “light touch” regulatory approach. For example, fund supervision is determined on a case-by-case basis based on a model or template; there is no pre-defined government regulation.

SMART funds can be tailor-made to fit the specific needs ofa client. There is no limit to the number of templates available. “This class of funds gives practical solutions to investor needs,” says Antoine Bastian, managing director of Genesis Fund Services, a boutique fund administrative services provider based in Nassau.

The challenge for the domestic financial services sector has always been to differentiate itself from its competitors by creating products that cater to the needs of the constantly changing marketplace, whilst at the same time maintaining strong corporate governance within a sound regulatory framework. SMART Funds are one of the best examples of how this can be achieved.

“It is a propriety advantage for The Bahamas, because you cannot offer the same guarantee in any other jurisdiction. You cannot simply take a Cayman fund, for example, and write the rules into the offering document, because that is not guaranteed. But, if you put the rules in the model into the law, as we have done in The Bahamas, then it cannot be changed without an act of the authorities,” says David Thain, general manager at Arner Bank and Trust (Bahamas) Ltd, and creator of the SMART Fund model.

Global leader
With a legislative framework in place that allows such a diversity of range of investment vehicles, the low-tax jurisdiction remains a competitive and accomplished player in the world of offshore finance.

The Bahamas is also a global leader in anti-money laundering enforcement and terrorist finance prevention. The independent regulatory arm of the Central Bank, known as the Compliance Commission, is the reason why. This autonomous commission is responsible for enforcing the anti-laundering rules and regulations of the international Financial Transaction Reporting Act 2000 (FTRA).

Additionally, The Bahamas enjoysa sterling reputation due to its stable government and rule of law. It also helps that the country has a common time zone with the financial markets in New York and Toronto. These benefits, combined with a renewed promotional push, are helping to maintain The Bahamas as one of the world’s premier offshore investment venues.



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