By Neil Hartnell
Tribune Business Editor
The two mutual funds launched yesterday by Sebas Bastian’s new investment house are not an alternative “back door” to an Island Luck initial public offering (IPO), top executives said.
Investar Securities directors reassured that the Gaming Act’s requirements, combined with the restrictions imposed on how much can be placed with any single investment, meant the Titan funds would own less than five percent of the web shop and its parent, Playtech Systems.
Investar, which unveiled the Titan products to highlight its long-awaited emergence as a capital markets player, said no other Bahamas-domiciled investment fund was likely to have “undergone more scrutiny” due to its planned holding in Island Luck.
Besides the web shop investment, Hillary Deveaux, Investar’s chairman, said the Titan Balanced Fund would also differentiate itself from competitors through its accessibility to “the small Bahamian”.
The fund’s entry requirements have been kept low, with investors only needing a minimum $500. This is a bid to “spread the wealth” by giving “ordinary, working” Bahamians the chance to pool capital, participate in the economy’s growth and obtain higher investment returns than they currently stand to gain on bank deposits.
Investar executives repeatedly described the funds’ goal as “economic democracy”, and a means to end the feeling among many Bahamians that they remain “second class citizens in their own country” - at least from an investment and ownership perspective.
Asked by Tribune Business how Investar planned to manage the potential “conflict of interest” involved with investing in Island Luck, given that Mr Bastian and the web shop’s chief financial officer, Dirk Simmons, both sit on the investment house’s Board, Mr Deveaux said internal and external restrictions limited the scale of the Titan Balanced Fund’s holding.
The former Securities Commission executive director explained: “Under the Gaming Act, anyone holding above 5 percent [equity in a web shop] has to be approved by the Gaming Board. We will stick strictly to the law, and hold only a maximum of less than 5 percent [in Island Luck].
“That’s one of the constraints we will have to commit to. The composition of the fund is that we can only invest up to 35 percent of the shares in any one company. We’re constrained by that as well.
“Island Luck has.... I don’t know how many shares and the volume of those shares, but clearly the fund would have to go above $10m - or $15-$20m - to absorb 35 percent. We’re constrained by the less than 5 percent and the 35 percent.”
Mr Simmons, who is also a director of the Titan funds themselves as well as Investar, emphasised that there was no link between the funds’ planned holding and any future Island Luck IPO.
“These funds, and the structure we’ve taken to invest.... has absolutely nothing to do with an IPO,” he said. “What’s happening here is we are trying to make investment opportunities more accessible to the average Bahamian, and that’s the long and short of it. There’s no back door-ing of it here.”
Little has been heard about Island Luck’s potential IPO for some months. The possibility of selling shares in the web shop chain to Bahamian investors was first raised during the campaign to legalise domestic gaming, and Mr Bastian indicated it remained a goal once that objective was achieved.
Any IPO plans, though, had to be put on hold following the major increase in web shop taxation imposed in the 2018-2019 Budget. This resulted in legal action and lengthy negotiations between the Government and web shop industry, culminating in the mid-February 2019 settlement that sharply reduced the industry’s tax burden.
The certainty created by the settlement removes a potential obstacle to an Island Luck IPO, even though several of its web shop rivals are still refusing to comply with the deal’s terms. However, Mr Deveaux yesterday said the web shop and Investar are currently “not even moving towards” an IPO.
Arguing that there are “very few investment funds” in The Bahamas with the minimum investment entry threshold is $500, the ex-Securities Commission chief said the opportunity provided by the Titan Balanced Fund to invest in Island Luck could prove “exciting” to gaming patrons.
“The performance of Island Luck has been extremely successful over the years,” Mr Deveaux added. “We’ve had concerns with what is gaming and what is investment. There are some concerns about if Island Luck had an IPO - we’re not even moving in that direction - and if people bought the shares and it was listed on BISX, people would be gaming, and that’s not true.”
Ansel Watson, Investar’s president and chief executive, said: “For the first time those who have watched the success of Island Luck will actually have the opportunity to participate in that success.”
While the Titan Balanced Fund is focused on small, retail investors, its counterpart Titan Fixed Income Fund is targeted at sophisticated institutional investors and high net worth individuals. Incorporated as a professional fund, it will likely concentrate on securities such as preference shares and government/corporate bonds.
Both funds were officially launched last night by Mr Bastian at the OWN Bahamas forum. “The Titan Balanced Fund is what I think generates the greatest excitement because it is intended to make investment for the ordinary working Bahamian - for you, and you, and you - a reality,” he said.
“You will be able to become an investor at $500 a share and pool resources with hundreds, thousands of others to invest in businesses to grow The Bahamas.” Mr Bastian added that Bahamians “do not have to sit on the sidelines any longer” when it comes to investing in, and ownership of, their own economy with the funds providing “a new way to get into the game”.
The Titan Balanced Fund, licensed as a standard fund by the Securities Commission, is more highly regulated than its counterpart because it is aimed at the general public rather than experienced investors.
Investar said both funds have been approved by the Bahamian capital markets regulator, and will start seeking investor subscriptions on June 3 when their offering documents are publicly released.
Mr Deveaux argued that the Titan Balanced Fund was likely the most scrutinised and regulated investment fund in Bahamian history, given that it had to be approved by both the Securities Commission and the Gaming Board due to the Island Luck holding. It had, he added, “been scrutinised to an unprecedented level”.
“Probably no investment fund ever proposed in The Bahamas has undergone more scrutiny than the Titan Balanced Fund, primarily because, in our application to the Securities Commission, we were proposing to include in its portfolio Playtech (Island Luck) shares,” the former Securities Commission chief said.
“The Securities Commission worked very closely with us and the Gaming Board to ensure that we were compliant with both the Gaming Act and the Investment Funds Act.”
Investar executives declined to specify the amounts they were seeking to raise from both funds, but said the the $1.6bn-plus excess liquidity in the commercial banking system at end-March meant there was ample capital available.
They did, however, pledge to exceed the average 3-5 percent returns delivered by BISX-listed companies along with the yields generated by rival investment funds. “We are very confident in our offering, and are confident our offering meets the returns and expectations of the average Bahamian,” Mr Simmons added.
Investar, which is the Titan funds’ sponsor and promoter, has hired Leno Corporate Services as their manager and custodian. Genesis Fund Services is the administrator, with Bank of The Bahamas serving as banker. The Mackey and Moxey law firm are the funds’ attorneys, while the Baker Tilly Gomez accounting firm will serve as accountants.
Apart from Mr Simmons, the Titan funds’ directors include well-known businessman Felix Stubbs and financial services executive, Heather Bellot-Hazarian, who recently joined Core Capital Partners as its chief executive.