The British Virgin Islands (BVI), in continuing to establish itself as a premier offshore financial services jurisdiction, has created two new funds to complement its very popular existing funds offering with the bold intention of remaining on the cutting edge of the financial services market. The two new fund products, the
"Incubator Fund" and the
"Approved Fund" are aimed respectively at start-up managers and those managing funds for small groups of closely-connected investors, such as family offices.
The two new funds will be governed by the a new legislation
"Securities and Investment Business Regulations 2015". The Securities and Investment Business (Incubator and Approved Funds) Regulations, 2015 (the “Regulations”)
will come into force on 1 June 2015.
The Incubator Fund
The incubator fund is aimed at managers who do not necessarily have the benefit of seed investor capital but who wish to set up quickly and establish a track record with minimal set-up costs and without having to comply with onerous regulatory obligations. The product is therefore expected to be very attractive to start-up managers who are seeking the best environment to grow their assets under management in the most cost-efficient manner.
Under the Regulations, the incubator fund is permitted to operate for two years (with the possibility of one additional year) with no functionaries (i.e. administrator, custodian or manager) and no requirement to appoint an auditor, provided it remains within the relevant thresholds applicable to the fund. These thresholds are:
-
a maximum of 20 investors;
-
a minimum initial investment of US$20,000 by each investor; and
-
a cap of US$20 million on the value of investments of the fund.
Prior to the end of the two or three-year term (as applicable) or upon exceeding any of the specified thresholds, the fund must elect one of the following options:
-
apply for recognition of the fund as a private fund or professional fund by preparing, amongst other things, an audit demonstrating its current financial position and compliance with the Regulations and submitting the application to the Financial Services Commission of the British Virgin Islands (the Commission);
-
apply to the Commission for approval as an approved fund; or
-
where it is not viable for the fund to continue at the end of its "incubation period," wind up its operations.
The Approved Fund
The approved fund is aimed at managers who wish to establish a fund for a longer term, but on the basis of a more private investor offering, which may appeal to family offices or an investor base of close connections.
It also has relevant thresholds:
-
a maximum of 20 investors at any one time; and
-
a cap of US$100 million on the value of investments of the fund.
It has similar characteristics to the private fund including no minimum initial investment for the investors, but unlike the private fund, the approved fund is not required to appoint an auditor, a manager or a custodian. However, to ensure there is some suitable oversight of the operations of the fund, it is required to appoint an administrator which will be reassuring to potential investors.
Unlike the incubator fund, the approved fund does not have a restricted validity period and can continue to operate as an approved fund for the full duration of its lifetime, unless:
-
a decision is made to voluntarily apply to the Commission to recognise the fund as a private or professional fund;
-
it is required to convert into a private or professional fund upon exceeding one of the relevant thresholds; or
-
it elects to wind up its operations.
The Financial Service Commision has provided both of these new fund products with
the further flexibility of being able to operate and commence trading after two days of submission of documents, assuming they are in order.
The legal costs are anticipated to be lower than those anticipated with setting up a private or professional fund, largely fue to the fact that the mandatory information to be contained in the offering documents of these funds, as specified by the Regulations, is greatly reduced, thereby allowing these funds to use short-form term sheets where appropriate. Combining the cost caving along with the option to only appoint the service providers that the manager strictly believes the fund requires, the new regime will provide significant cost savings to an investment manager of one of these funds.
These new profucts and Regulations are a great new addition to the BVI investment funds landscape and will further refine the BVI's reputaiton as a flexible, innovative, attractive and cost-effective jurisdiction for new fund launches.
For more information please
contact us.
Source:
Philip Graham, Harneys, 19.05.2015
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