Two new fund products have been added in the British Virgin Islands under the Securities and Investment Business (Incubator and Approved Funds) Regulations, 2015 (the "Regulations"); the incubator fund and the approved fund. Following the success of the Approved Managers regime introduced in 2012, there was a general view amongst local practitioners that the funds offering could be further improved with new products that would complement the Approved Managers and overall funds regime in the BVI and be attractive to start up and emerging managers. The Regulations enable incubator and approved funds to be set up and launched on a fast track, cost effective basis with minimal regulatory oversight by the BVI Financial Services Commission (the "Commission").
An incubator fund has a minimum investment requirement of US$20,000, a cap on net assets of US$20M and limit of 20 investors. An incubator fund does not need to appoint an administrator, custodian, investment manager or auditor.
An approved fund has a net assets cap of US$100M and no more than 20 investors are permitted, but with no minimum investment criteria. An approved fund may operate without appointing a custodian, investment manager, or auditor, but will need an administrator.
Applications for an incubator fund or an approved fund are made to the Commission and must be accompanied by:
- the constitutional documents;
- details of the investment strategy;
- a prescribed form of investor warning; and
- an application fee of US$1,500.
An incubator fund or approved fund can commence business 2 days from the date of receipt of the application by the Commission.
Duration and conversion of incubator fund
An incubator fund has a limited life of 2 years which can be extended for up to 12 months. An approved fund has no such limits. An incubator fund can convert to an approved fund, a private or professional fund, or may wind up at the end of its term. An incubator fund can convert to a private or professional fund or to an approved fund by making an appropriate application to the Commission.
Service provider requirements are minimal. Each fund is required to appoint an authorized representative in the BVI and an approved fund is required to have an administrator at all times. However, there are no mandatory custody requirements.
There is no requirement for the issuance of an offering document and where the fund determines not to issue one, the required investor warnings can be set forth in a separate term sheet.
Otherwise, an incubator fund and approved fund are required by the Regulations to:
- pay an annual fee of US$1,000 on or before
31 March of each year;
- have a minimum of two directors at all times, one of whom must be an individual;
- notify the Commission of any change to any of the information submitted to the Commission in its application; for instance in relation to it or its conduct (which has or is likely to have a material impact or significant regulatory impact), directors, etc;
- prepare and file annual financial statements to the Commission (with no requirement for an independent audit); and
- file bi-annual returns with the Commission.
We expect the introduction of the incubator fund and approved fund to prove attractive products to start up managers, family offices and others looking for a simple, quick and cost effective way to establish a lightly regulated investment vehicle.
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