As wealthy families seek to engage more closely and gain greater control over their financial and personal affairs, family offices have risen to play vital roles in the cohesive and coherent management of business interests in tandem with domestic and personal affairs.
A family office can serve as the umbrella under which a family's multitudinous affairs can be collected, organised and managed, as well as providing a structured and disciplined means by which to evaluate evolving opportunities and obligations as well as a forum for considering overarching objectives.
Creation of centralised control and responsibility for integral functions around the family's various interests and obligations provides stability over extended time periods. Family offices use a variety of tools to accomplish these goals, and this article describes the benefits of using a Bahamian investment fund in this context.
A family has a number of choices to make when considering its intergenerational planning, but whether a trust is established or not, an investment fund can be a savvy choice for holding and handling some or all of the family’s assets"
A family has a number of choices to make when considering its intergenerational planning, but whether a trust is established or not, an investment fund can be a savvy choice for holding and handling some or all of the family's assets. Because all open-ended funds established in The Bahamas must be licensed, and closed end funds may elect licensing, a licensed investment fund offers transparency to family members in light of the disclosure, reporting and accounting requirements arising under the relevant statutes. Further, Bahamian investment funds offer considerable flexibility in structure and in style.
There are no restrictions on the types of assets which may be held in an investment fund. Therefore, in addition to ‘traditional' investment assets such as stocks and bonds, interests in operating businesses, art or jewellery collections, yachts, planes and other non-financial assets can be held in an investment fund.
An investment fund need not have its shares or interests denominated in a single currency: instead, different classes of interests may be denominated in different currencies to accommodate bookkeeping and accounting where assets are disbursed across multiple currencies.
A family may also want the opportunity to divide interests in various assets according to the members' own requirements.
The flexibility inherent in a Bahamian investment fund permits a family to organise members' interests in a variety of ways, such as by:
- grouping assets by type and placing each type of asset in a separate class;
- grouping assets by currency and placing the assets into classes by currency; or
- creating a class for each family member
In instances like (1) and (2) above, the shares in each class can be allocated between family members, with the opportunity to divide the interests in each class differently if so desired.
For instance, the family may wish to issue majority interests in a class holding an operating company to the family member(s) who are directly involved with the company. Alternatively, each family member can hold a class of interests in the fund as per (3) above, which would work particularly well in instances where the holdings are largely or exclusively stocks, bonds and the like.
It is also possible to select the type of investment fund used depending on the number of family members who will hold interests, and the level of disclosure and financial reporting that is thought to be necessary.
The most stringent requirements are imposed if the family elects to use a ‘professional' fund, which must issue an offering document which includes the information prescribed by regulation and which must prepare audited financial statements on an annual basis for distribution to its investors and to the Securities Commission of The Bahamas.
Every investor in a professional fund must meet a number of basic qualifications as to income or assets, which is unlikely to pose any difficulties in a family office scenario.
A professional fund is therefore best suited to circumstances in which highly disciplined reporting and disclosure is desired.