Part 1: The Problem with Single-Asset Funds
The Bahamian capital markets have reached a crossroads. The expansion of retail investor access to large-scale infrastructure investments marks a welcome evolution, bringing opportunities once limited to institutional and high net worth investors to the broader public. Many Bahamians have benefitted from the income generated by these assets. However, a vital question arises: Is the 'Investment Fund' structure the best way for Bahamians to build wealth? While these opportunities are being presented as 'funds', this structure as used for these offerings is a contradiction that can shortchange investors from engaging in true ownership and limit their long-term wealth creation. We believe that for these single asset opportunities to truly benefit Bahamian investors, they should be structured as direct share offerings.
Is the 'Investment Fund' structure the best way for Bahamians to build wealth?
A fund is designed to provide risk diversification. This fundamental distinction is not just semantic, it is regulatory. The Investment Funds Act, 2019 defines a fund as having the aim of 'spreading investment risks'. When an issuer uses a fund structure to hold just one operating company, it contradicts this core statutory purpose. You aren't spreading risk; you are concentrating it. By labelling a single-asset investment as a 'fund,' we risk giving investors a false sense of security that they are buying into a managed pool of risk, when in fact they are buying a concentrated bet on a single operating entity. A fund with one asset is essentially an operating company wearing a mask, but without the full protections of an equity listing. The question investors must ask: Are these structures aligned with the expectations and interests of Bahamian retail investors?
The difference between owning a share and owning a fund unit is the difference between being an owner and being a passenger, or the difference between a constitutional right and a tenant's lease. In a Share Offering with a BISX listed company, you are a legal owner of the company with the right to vote at General Meetings and participate in governance. You benefit from full, continuous, and equal disclosure of material information, and you are protected under minority shareholder laws and rules. In a Fund Offering, you are a unit holder and therefore the beneficiary of a contract. Governance is centralized with the Investment Manager, your participation in decision making is limited to what is written in the fund's Offering Memorandum, and disclosure is structured around the fund instead of the underlying operating company.
For a diversified fund, this trade-off for professional management makes sense. However, for a single asset fund, you're paying a fee to be a 'silent partner.' You participate in the profits, but you do not hold the steering wheel. Both structures are valid for specific purposes. Most financial experts recommend mutual funds as a good first investment for inexperienced investors. Bahamian Dollar funds listed on BISX have Assets Under Management of approximately $1.5 Billion and are a critical tool used by many pension funds. This article instead speaks to when a single asset fund offering structure is used primarily as a substitute for a direct share offering. Without diversification and professional money management, the advantages of a single asset fund versus a direct share offering are significantly less clear.
Feature | Share Offering (BISX Listed) | Fund Offering |
|---|---|---|
| Ownership Status | Legal owner with voting rights and governance participation | Unit holder as beneficiary of contract |
| Voting Rights | Right to vote at General Meetings | No voting rights in underlying company |
| Governance Participation | Full participation in company governance | Governance centralized with Investment Manager |
| Disclosure Requirements | Full, continuous, and equal disclosure of material information | Disclosure structured around fund, not underlying operating company |
| Decision Making | Participate as shareholder in company decisions | Limited to provisions in Offering Memorandum |
| Investor Protections | Protected under minority shareholder laws and rules | Contract-based protections per Offering Memorandum |
To properly understand the increasing use of fund structures, it is important to recognize the issuer's perspective. Issuers are often making rational, commercially driven decisions based on practical considerations including faster time to market, lower regulatory and ongoing compliance requirements, centralized governance and control, reduced costs relative to a public listing, and greater structural flexibility in capital raising . These are all legitimate advantages from an issuer's standpoint. The question, however, is whether these benefits align with the long-term interests of Bahamian retail investors, particularly those seeking not just income, but also transparency, fair value, and the opportunity for capital growth.
Although issuers may benefit from a fund structure, retail investors often encounter a much different experience. Investing in a single asset fund impacts retail investors beyond just its structure, it directly shapes their results. What seems like a simple investment can actually involve three key constraints that affect how value is realized, accessed, and interpreted. These constraints are an inherent part of using a fund structure for a single asset. We refer to them as the Three Locks: Price Discovery, Liquidity, and Information.
The Three Locks: Price Discovery, Liquidity, and Information
TOMORROW IN PART 2: We examine how these Three Locks trap value and what investors must demand.
