The Bahamas’ Comprehensive Financial Ecosystem: The Case Of AB Capital Partners

Client Profile

AB Capital is a leading global investment firm headquartered in New York, specialising in asset management and wealth advisory services. With a diverse portfolio of alternative investments and a presence in major financial hubs across North America, Europe, and Asia, AB Capital manages over $100 billion in assets for institutional and high-net-worth clients.

AB Capital was approached by one of its largest clients, which was interested in launching a mixed asset investment fund consisting of both securities and digital assets (the Fund). AB Capital identified The Bahamas as the ideal jurisdiction to facilitate the launch, administration and management of the Fund, not only because of its flexible SMART Funds regime and reputation as a leader in digital asset regulation, but also because of its strategic location, robust legal and regulatory framework, and overall sophisticated financial services sector.

Step 1: Incorporation Of Bahamian Subsidiary

AB Capital incorporated a subsidiary as an international business company (IBC) to serve as its primary vehicle for operations in The Bahamas (hereinafter referred to as ’ABC Bahamas’). The IBC structure was chosen due to its ease of incorporation, cost-effectiveness, and flexibility, in particular, the ability to operate cross-border, making it ideal for AB Capital.

Step 2: Licensing and Registration

With the incorporation of ABC Bahamas completed, AB Capital proceeded to secure the necessary licences to manage the assets of the Fund.

Capital Markets Business Licence

The management of securities in or from within The Bahamas requires licensing by the Securities Commission of The Bahamas (SCB), under the Securities Industry Act, 2024 (SIA), as it constitutes the conduct of capital markets business. The SIA, which came into force on 29 July 2024, not only modernises the regulatory framework, but also upholds international standards and facilitates enhanced market development, all of which underscores The Bahamas’ status as a leading jurisdiction for securities and capital markets.

The SIA provides various categories of licensing, including dealing in capital market instruments, arranging deals in capital markets instruments, managing capital markets instruments and providing advice on capital markets. A firm may be licensed in one or all of the categories, providing the opportunity for the expansion of its service offering, or for adjustments to be made to its operations in order to address changes in market conditions. ABC Bahamas opted to be licensed in the categories of managing capital market instruments and advising on capital markets instruments.

Digital Assets Business Licence

Similarly, the management of digital assets in or from within The Bahamas constitutes digital asset business and requires licensing by the SCB, under the Digital Assets and Registered Exchanges Act, 2024 (DARE), which also came into force on 29 July 2024. DARE introduces enhanced ongoing regulatory requirements for digital asset business and registered exchanges, solidifying The Bahamas’ position as a leader in digital asset regulation, providing a robust and pragmatic regulatory framework for new and established digital asset businesses.

Given ABC Bahamas’ application for licensing under the SIA, the SCB was able to streamline ABC Bahamas’ application for a licence under DARE, as afforded under the legislation. ABC Bahamas was licensed under DARE to advise on and manage digital assets.

Fund Administrator

An investment fund established under the Investment Funds Act, 2019 (IFA), unless it is self-administered, is required to appoint an investment fund administrator that is licensed under the IFA, or is established and operating in accordance with the laws of a prescribed jurisdiction. As the United States, where AB Capital is regulated, is a prescribed jurisdiction under the IFA, AB Capital is able to act as administrator of the Fund without further registration.

Regulatory Obligations

As a regulated entity under the SIA and DARE, ABC Bahamas is required as a minimum to have two directors, a chief executive officer, a compliance officer and a money laundering reporting officer, with such officers needing to be based in a physical office maintained by ABC Bahamas in The Bahamas. In order to comply with these physical presence obligations, ABC Bahamas tapped into The Bahamas’ highly skilled workforce, and recruited a team of Bahamian professionals to fill the key positions. The availability of skilled professionals with a deep knowledge of The Bahamas’ regulatory environment enabled ABC Bahamas to not only comply with local requirements, but also maintain its global standards of operation.

Step 3: Launching The Fund

With both licences secured, ABC Bahamas proceeded to launch the Fund, leveraging The Bahamas’ innovative investment funds regime. The IFA governs the licensing and regulation of investment funds and related parties in The Bahamas.

ABC Bahamas was required, in the first instance, to establish the Fund by forming the underlying legal vehicle. The IFA permits the establishment of an investment fund as a company (ie IBC), a partnership, a unit trust, or investment condominium. ABC Bahamas opted for the incorporation of an IBC, which is the most commonly used vehicle.

Following incorporation, ABC Bahamas explored the different classes of investment funds recognised under the IFA, namely, a standard fund, which can be marketed publicly, a professional fund, which caters specifically to sophisticated investors who meet certain criteria under the IFA, such as high-net-worth individuals and institutional investors, and Specific Mandate Alternative Regulatory Test Funds (SMART Funds), which offer flexibility and customisation.

After evaluating the various fund classes, AB Capital identified the SMART Fund as the most appropriate fund structure for licensing, and narrowed the options to the SMART Fund Model 002 (SFM 2) and the SMART Fund Model 007 (SFM 7). The SFM 2 and SFM 7 share many of the same characteristics, such as the requirements for an offering memorandum or term sheet, a minimum of two members of the Board of Directors (none of which need to be resident in The Bahamas), and an independent custodian (unless the investments are of such type that they are not required to be held in custody), amongst other features, including that they are not required to appoint an independent investment fund administrator, and that they may be licensed by a Bahamian licensed unrestricted investment fund administrator, or by the SCB within three days of submission of its application.

ABC Bahamas decided to licence and launch the Fund as an SFM 7. This decision was driven by the diverse investment strategy, which would accommodate the mixed asset classes and the ability to appoint AB Capital as a foreign administrator of the Fund, with ABC Bahamas as the Fund’s investment manager, capable of managing both the securities and the digital assets of the Fund. As an SFM 7, the Fund is limited to fifty investors and the initial minimum investment per investor is USD500,000 (or equivalent).

The Outcome

AB Capital’s expansion into The Bahamas was a strategic move that has had a significant impact on its global operations. By leveraging The Bahamas’ robust regulatory framework, highly-skilled workforce, and innovative financial services and products, AB Capital was able to successfully launch the Fund and strengthen ties with one its largest clients. Thereafter, ABC Bahamas was able to create similar fund structures for additional clients, which have not only enhanced its overall product and service offering, but also strengthened its competitive advantage.

The case of AB Capital illustrates that as the global financial landscape continues to evolve, The Bahamas remains well-positioned to attract international businesses and investors seeking to capitalise on the opportunities offered by this dynamic and vibrant financial hub.

Lakera A. Russell
Lakera A. Russell is a distinguished Senior Associate at Glinton Sweeting O’Brien, specializing in corporate, commercial, and financial services law. Her expertise spans a broad range, primarily focusing on secured financing transactions, regulatory compliance, mergers and acquisitions, private offerings, and investment fund matters.

Dwayne Whylly
Dwayne is Deputy Chairman for The Bahamas Financial Services Board (BFSB) and Head of Financial Services Group at GSO Legal. He advises on a broad range of corporate and financing transactions, including private M&A, corporate restructurings, joint ventures, private equity investments and secured and unsecured corporate asset and project financing. His practice also extends to tax advisory, tax reporting and other regulatory advisory matters, including banking and securities regulation, Commercial Economic Substance (CESRA), digital assets and foreign direct investment. Dwayne is a jurisdiction expert in FATCA and CRS. He also regularly advises corporate and financial institutions, as well as private clients and their financial advisors.