The BVI Approved and Incubator Funds

The BVI Government has developed two new regulated fund structures to cater for family and friends structures and start up investment managers, both of which are less regulated than Professional Funds and Private Funds and offer simplified opportunities to pool investments on a more cost-efficient basis. The new fund structures can be constituted as either a company or a limited partnership.

The British Virgin Islands (“BVI”) is one of the leading offshore investment funds Jurisdictions. The most
popular types of regulated funds in the BVI are the professional fund  and the private fund. The key requirement for an investment into a professional fund is that the investor must initially invest at least USD100,000. In contrast, a private fund has no minimum investment threshold, but is limited to either having no more than 50 investors or to private marketing. A professional fund and a private fund must both have certain third party service providers appointed and, subject to limited exemptions, file audited financial statements annually.

The BVI Government has developed two new regulated fund structures to cater for family and friends structures and start up investment managers, both of which are less regulated than Professional Funds and Private Funds and offer simplified opportunities to pool investments on a more cost-efficient basis. The new fund structures can be constituted as either a company or a limited partnership.

The Approved Fund
The Approved Fund is geared towards ‘family and friends’ funds. Its key characteristics are:

  • the total number of investors is restricted to 20;
  • net assets of the Approved Fund must not exceed USD100,000,000 (or its equivalent in any other currency);
  • no requirement to have an offering document in place;
  • no requirement to have third party service providers appointed, except for appointment of a fund administrator which will, in short, provide the Approved Fund with registrar and transfer agent and net asset value calculation services; and
  • no requirement to file audited financial statements.

Although not required by law, in practice the Approved Fund will often have a third party investment manager appointed. The investment manager will typically hold all voting shares issued by the Approved Fund and provide the Approved Fund with discretionary investment advice.

The Incubator Fund
The Incubator Fund is aimed at emerging managers and allows them a two to three years incubation or “validity” period to test a strategy and establish a track record. During that period, the fund can operate with light regulation. The key characteristics of an Incubator Fund are:

  • the total number of investors is restricted to 20;
  • an investor must initially invest at least USD20,000;
  • the net assets of the Incubator Fund must not exceed USD20,000,000 (or its equivalent in any other currency);
  • no requirement to have an offering document in place;
  • no requirement to have third party service providers appointed;
  • no requirement to file audited financial statements; and
  • the life span is limited to 2 years (or 3 if an extension is granted) after which an
  • Incubator Fund may be converted into a Professional Fund, a Private Fund or an Approved Fund. Alternatively, an Incubator Fund can also be converted into an unregulated fund.

Ongoing Requirements
Approved Funds and Incubator Funds must:

  • have two directors, one of which must be an individual;
  • have an authorized representative. The authorized representative will serve as a conduit between the fund and the BVI Financial Services Commission (the “FSC”);
  • submit financial statements annually (which need NOT be audited);
  • submit returns to the FSC regarding its status, i.e. the number of investors, total investments, aggregate subscriptions and redemptions, net asset value of the fund and details of any significant investor complaints; and
  • notify the FSC within 14 days of any changes to the information provided in the application or in relation to any matter which is likely to have a material impact on the fund.

Taxation
No income, corporate, capital gains or withholding taxes are levied on an Approved Fund or an Incubator Fund in the BVI.

 

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