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Antoine Bastian B. G., Opalesque Geneva: In its 20-year existence, the Smart Fund model, one of the several innovative investment solutions created by the Bahamas, has emerged as an iconic and popular investment vehicle.
The Bahamas introduced the Specific Mandate Alternative Regulatory Test Fund (SMART(C) Fund) under the Investment Funds Act, 2003. It was meant to be an additional style of a collective investment vehicle.
The primary facility offered by the Smart Fund concept is an open architecture which allows practitioners to design innovative structures, akin at times to special purpose vehicles, without reference to inflexible regulatory criteria predefined in legislation. They enjoy a supervisory environment appropriate for the limited, specific nature of the project rather than a 'broad brush' regulatory approach. The model was designed to be a
dynamic, adaptable tool, evolving with the times and reflecting the needs of fund offerings. And it is still evolving today with upcoming updates.
"The future of SMART Funds appears incredibly bright"
In the last 20 years, the bulk of fund offerings have come through these Smart Fund models, says Antoine Bastian, CEO of Genesis Fund Services, a fund administrator, during the recent Opalesque Bahamas Roundtable.
"The Smart Fund, probably the most recognized investment fund vehicle that The Bahamas offers due to its popularity, has been the lifeblood of the fund industry for the past 20 years."
There has been a shift from traditional long-equity or fund of funds towards private equity and alternatives, he explains. He sees a broader offering landscape for alternatives than ever before, particularly for Smart Funds. This would include real estate, private equity, digital assets, and other alternative asset classes.
However, he believes the Smart Fund model needs to adapt further.
"While Smart Fund 8 is under consideration, the prospect of introducing a Smart Fund 9 for private equity and a Smart Fund 10 for real estate seems inevitable," he says. "I strongly believe that the continued innovation and adaptability of the Smart Fund product in the Bahamas will remain vital for the thriving fund business in our nation."
As opposed to the ICON fund, an alternative legal structure that was primarily crafted with the Brazilian market in mind, the Smart Fund model is a nimble product offering designed to adapt in sync with
financial market developments rather than being strictly country-specific, he adds.
Investors can influence the level of governance
The Smart Fund platform in the Bahamas offers a shareholder-driven governance system, explains Wendy Warren, Managing Director at Caystone Solutions, a funds service provider.
"Typically, hedge funds globally are quite standardized; you can readily anticipate the structure," she says. "However, Smart Funds bring an interesting twist as investors can influence the level of governance, opting for more or less as per investors' needs. This dynamic nature is a unique aspect of the Smart Fund platform. It allows for flexibility, changing gears as per the investors' demands."
As there are no constraints on investment types, the possibilities are limitless and could involve digital assets, currencies, assets concentrating on geopolitical risks or others. Themes and focuses such as ESG fit well within the fund structure as one can clearly define the investment objectives in the fund offering memorandum and convey this to investors. The various counterparties then ensure the fund stays aligned with these objectives.
"Like Antoine, I had the honour to be involved with the Smart Fund launch 20 years ago," she adds. "It represented the rebalancing of the jurisdiction, which had for the previous three years focused on regulatory compliance. This dual and integrated approach to market development and regulatory compliance has been the hallmark of the sector since this time."
Related article:
13.Oct.23 Opalesque Roundtable: Bahamas stay ahead of digital assets regulation with new and improved DARE Act
To read all about new developments in The Bahamas' financial space, you can access the Opalesque Bahamas 2023 Roundtable report here and here:
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