Comparative Guides

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4. Results: Answers
Alternative Investment Funds
2.
Form and structure
2.1
What types of alternative investment funds are typically found in your jurisdiction?
British Virgin Islands

Answer ... The British Virgin Islands attracts a wide variety of open-ended hedge funds and closed-ended venture capital and private equity funds. While the British Virgin Islands is still home to some of the oldest funds of funds, with billions under management, it has also carved a niche as the first choice of the emerging manager. The British Virgin Islands has introduced products such as the incubator fund, the approved fund and the approved manager, which are tailored to cater to start-up managers that need a jurisdiction with a sophisticated regulatory framework which is attractive to investors, but with competitive pricing and proportionate regulation. The ability to attract emerging managers has placed the British Virgin Islands in an ideal position to attract innovative funds and new asset classes. As a consequence, it has been at the forefront of the explosion of cryptocurrency funds and blockchain-related venture capital funds.

For more information about this answer please contact: Ian Montgomery from Collas Crill
2.2
How are these alternative investment funds typically structured?
British Virgin Islands

Answer ... Investment funds in the British Virgin Islands may be formed as BVI business companies, segregated portfolio companies, limited partnerships (with or without legal personality) or unit trusts.

BVI business companies are by far the most common entity used to structure for investment funds, as the BVI Business Companies Act is extremely flexible and user friendly, selecting the best bits of English and Delaware companies law. The British Virgin Islands does not have the concept of share capital and the constitutional documents can be amended by the directors of the company.

Segregated portfolio companies (SPCs) are less common, but popular entities for umbrella funds operating a number of strategies and allowing investors to elect to invest in some, but not all portfolios. Each portfolio can operate a different strategy and benefit from a legal segregation of assets and liabilities such that the assets of one segregated portfolio are not available to meet the liabilities of another segregated portfolio.

We have seen a significant rise in funds formed as limited partnerships in the past two years, since the introduction of new limited partnership legislation in the form of the Limited Partnership Act, 2017 (LPA). The LPA modernised the limited partnership regime, making it particularly attractive for closed-ended funds and open-ended funds in master-feeder structures with onshore feeder funds which are limited partnerships. Limited partners are liable only up to their capital commitments, provided that they do not participate in the management of the limited partnership. The LPA provides an extensive list of safe harbours which helps to protect the limited liability of limited partners.

Unit trusts are the least common fund vehicles in the British Virgin Islands, but can be attractive for investors based in certain jurisdictions.

For more information about this answer please contact: Ian Montgomery from Collas Crill
2.3
What are the advantages and disadvantages of these different types of structures?
British Virgin Islands

Answer ... Please refer to question 2.1.

For more information about this answer please contact: Ian Montgomery from Collas Crill
2.4
What are the most widely used alternative investment funds structures used in your jurisdiction?
British Virgin Islands

Answer ... Common structures for alternative investment funds include the following:

  • Standalone funds are normally used for funds which are not seeking to attract US investors (other than tax-exempt US investors). These funds normally have a single investment strategy and may have one or more classes of shares, with different terms as to liquidity and/or fees.
  • Umbrella funds are normally structured as SPCs, with each segregated portfolio or class operating a separate investment strategy.
  • Master-feeder structures are often used for funds which are seeking to attract investors with different requirements (often regarding tax or regulatory treatment). Master-feeder structures are most commonly used in the British Virgin Islands by US-based managers that are looking to attract investment from both US investors (which invest into a US feeder fund that has ‘pass through’ treatment for tax purposes) and foreign investors or US tax-exempt investors, which generally prefer to invest into a ‘blocker’ and will invest in a BVI feeder fund. Both the US feeder and the BVI feeder will invest into the BVI master fund, which will then carry on the investment activities of the fund structure.
  • Mini-master structures are common in the British Virgin Islands and a good alternative to the master-feeder structure for managers that have an existing US or other onshore fund, but have a foreign allocator that needs a different structure for tax or regulator purposes. A BVI feeder can feed into an onshore fund which has previously been acting as a standalone fund, but becomes the master fund. The onshore investors continue to invest directly into the master fund, rather than creating a new master fund. This is a cost-effective structure, but may not have all the benefits of a master-feeder structure.

For more information about this answer please contact: Ian Montgomery from Collas Crill
2.5
Is there a preferred alternative fund structure for particular investment strategies (ie, hedge fund/private credit/private equity)?
British Virgin Islands

Answer ... In general, BVI hedge funds are more commonly structured as BVI business companies. Private equity or venture capital funds are more commonly structured as limited partnerships, as the structure is more flexible for capital commitments which are called as and when appropriate investments are identified during the course of the investment period.

For more information about this answer please contact: Ian Montgomery from Collas Crill
2.6
Are alternative investment funds required to have a local administrator appointed?
British Virgin Islands

Answer ... BVI mutual funds registered or recognised as public, professional, private and approved funds must appoint and administrator. The administrator need not be a local administrator, but the BVI Financial Services Commission (FSC) can accept the appointment of an administrator which is licensed by the FSC or is located in a jurisdiction recognised by the FSC pursuant to the Securities Investment Business (Recognised Jurisdictions) Notice, 2010. The FSC will normally accept the appointment of an administrator licensed in a recognised jurisdiction without further investigation. The FSC may, on application, accept the appointment of an administrator regulated in a jurisdiction which it has not recognised if it can be demonstrated that the jurisdiction in which it is located has an effective system of regulation.

BVI private investment funds must appoint a person responsible for undertaking the valuation of fund property, which will normally be an administrator. The person appointed to carry out the valuation function may be licensed by the FSC or a regulatory authority in a recognised jurisdiction.

BVI incubator funds need not appoint an administrator, but must ensure that the persons controlling the fund’s investment function are independent from the persons controlling the fund’s valuation process. In practice, this will mean that an administrator will be appointed in most cases. As with other BVI mutual funds, incubator funds can appoint either a local administrator or an administrator in a recognised jurisdiction or otherwise approved by the FSC.

For more information about this answer please contact: Ian Montgomery from Collas Crill
2.7
Are alternative investment funds required to appoint a local custodian to hold assets? If yes, what legal protections are in place to protect the alternative investment fund’s assets?
British Virgin Islands

Answer ... BVI mutual funds registered or recognised as private, professional or public funds must, subject to the availability of exemptions, appoint a custodian. There is no requirement that the custodian be licensed in the British Virgin Islands and it may be regulated in a recognised jurisdiction or other jurisdiction with approval from the FSC.

BVI funds approved as incubator and approved funds must have arrangements in place for the safekeeping of fund property, including provisions for the appropriate segregation of fund property. There is no requirement for an incubator or approved fund to appoint a custodian.

For more information about this answer please contact: Ian Montgomery from Collas Crill
2.8
Is it possible for an alternative investment fund to redomicile to your jurisdiction? If yes, what considerations are required and what are the steps involved?
British Virgin Islands

Answer ... Yes, the BVI Business Companies Act and the LPA contain mechanisms for continuations into the British Virgin Islands. Alternative investment funds continuing into the British Virgin Islands must seek registration, recognition or approval from the FSC, depending on what level of regulation is appropriate for the fund continuing into the jurisdiction. The FSC’s approval must be sought in advance and the entity continuing must ensure that it would, on continuation, meet all of the applicable regulatory requirements under BVI law.

For more information about this answer please contact: Ian Montgomery from Collas Crill
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Alternative Investment Funds