Two new fund products will shortly be available in the BVI. The "incubator fund" and the "approved fund" are both "regulatory light" products designed to appeal to start up managers and those looking to manage a small number of investors.
The new legislation which governs these products is the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015 (the "Regulations"). The Regulations are expected to be brought into force shortly.
The Incubator Fund
The incubator fund will appeal to managers who want to move quickly and establish a track record whilst keeping set-up costs low and without having to comply with onerous regulatory obligations.
An incubator fund will, for a period of two years (with approval this may be extended for a further year) be permitted to operate with no functionaries (i.e. no administrator, custodian or manager). There will also be no requirement to appoint an auditor during that two/three year period provided the incubator fund continues to satisfy the following criteria:
- 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 the fund.
Prior to the end of the two / three-year period or if the fund can no longer satisfy the above criteria an incubator must either:
- apply to the BVI Financial Services Commission (the "Commission") for recognition as a private or professional fund. The application will need to be supported by an audit demonstrating the fund's current financial position and compliance with the Regulations; or
- apply to the Commission for approval as an approved fund (see below); or"
- where it is not viable for the fund to continue to operate at the end of the period, be wound up and dissolved.
The Approved Fund
The approved fund has been designed for managers looking to establish a small fund that is essentially private in nature. To this extent it will appeal to family offices in particular.The necessary criteria are as follows:
- a maximum of 20 investors at any one time; and
- a cap of US$100 million on the value of the fund.
As with existing BVI private funds there is no minimum initial investment but unlike private funds, the approved fund does not need to appoint a manager, a custodian or an auditor. An approved fund will however need to appoint an administrator to ensure there is a degree of independent supervision of the fund's operations.
Unlike the incubator fund there is no limit to the period that an approved fund can operate unless it no longer meets the criteria outlined above in which case the fund must
- apply to the Commission to be recognised as a private or professional fund; or
- wind up its operations.
Neither incubator funds nor approved funds are required to have an offering document however in both cases they must provide every investor, as a minimum, with a written investor warning following a prescribed format.
Incubator funds and approved funds will normally be able to commence business 2 business days after submission of their application to the Commission.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.