British Virgin Islands - Providing a firm and reliable base for fund managers
Since 2012, the BVI has introduced three exciting and innovative investment fund products, namely: the BVI Approved Manager, the BVI Incubator Fund and the BVI Approved Fund. The Approved Manager was introduced at the end of 2012, followed by the Incubator Fund and Approved Fund in mid-2015, and each has been growing steadily since their launch. Currently, there are 140 Approved Managers, 21 Incubator Funds and 29 Approved Funds, based on figures published by the BVI Financial Services Commission (as of 30 September 2016).
BVI approved manager
The approved manager regime allows a BVI approved manager to manage both BVI funds and non-BVI funds that are located in recognised jurisdictions and currently permits the management of an open-ended fund with no more than USD400million in AuM or a closed-ended fund with USD1billion of aggregate capital commitments. The approved manager regime is geared primarily towards smaller managers and start-ups and avoid the need for a full-fledged investment management license under the Securities Investment Business Act (SIBA), which became the BVI's principal securities and investment business legislation in 2010.
The BVI Incubator Fund and BVI Approved Fund
The approved manager regime complements both the Incubator Fund and Approved Fund along with the previously existing and well known Private Fund, Professional Fund and Public Fund vehicles.
BVI Incubator Fund
The incubator fund appeals to emerging managers looking for a low cost entry into the fund market and who want to establish a track record with a view to growing their investor base and AuM over the short to medium term. The incubator fund has the following key features:
- 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.
There are no functionary requirements, accordingly, an incubator fund can be established and operated without an administrator, manager, custodian or auditor. Also, the fund is not required to have an offering memorandum but is required to file a description of its investment strategy and give appropriate investment warnings to investors.
An incubator fund is permitted to operate for two years (with the possibility of one additional year). This time period allows for the establishment of a track record without onerous regulatory obligations before the manager makes a decision as to the way forward.
Prior to the end of the two or three period (as applicable) or upon exceeding any of the specified thresholds, the fund must elect one of the following options:
- convert to an approved fund;
- convert to a private fund or professional fund; or
- where it is not viable for the fund to continue at the end of the two or three year period, wind up its operations.
BVI Approved Fund
The approved fund is geared towards managers who wish to establish a fund for a longer term, and is fairly similar to the existing BVI private fund regime, however, it has lower caps on AuM and investors and is therefore more likely to appeal to smaller groups of closely connected investors and family offices.
An approved fund has the following features:
- a maximum of 20 investors at any one time; and
- a cap of US$100 million on the value of investments of the fund.
An approved fund has no minimum initial investment requirement, and is not required to appoint an auditor, manager or custodian. The fund is however required to appoint an administrator to provide suitable oversight of its operations. No offering memorandum is required but the fund is required to file a description of its investment strategy and give appropriate investment warnings to investors.
Unlike the incubator fund, the approved fund can continue to operate as an approved fund for an indefinite period, unless:
- a decision is made to convert the fund to a private or professional fund;
- it is required to convert into a private or professional fund by virtue of the fact that it has exceeded one of the relevant thresholds; or
- it elects to wind up its operations.
Overall, these new funds have had a great start in the market and the three features below have contributed to their much talked about success:
- They can be launched very quickly and commence trading within two (2) business days of lodging an application for approval with the BVI Financial Services Commission.
- They have limited functionary requirements.
- They offer a cost effective alternative for emerging managers and small closely connected investor groups.
The combined cost savings and quick launch to market coupled with the lighter touch regulatory regime makes the approved manager and these two new funds the vehicles of choice for emerging managers.
BVI vehicles and benefits
BVI companies are known and recognised globally for their ease of use and the advantages they bring to transactions. In the investment funds context, the BVI company is well-recognised among investment managers and fund promoters who laud the flexibility and certainty that the BVI Business Companies Act, 2004 (as amended) provides.
Alongside companies, partnerships are also used for fund structures and are expected to increase in popularity in 2017 when the new Partnership Act is introduced.
Of the many BVI advantages including the absence of currency exchange controls, a US dollar currency, stable democracy, common law legal system with final appeal to the Privy Council in London), some advantages stand out and appeal to fund promoters and managers including:
Taxation – BVI has no income tax, corporation tax, capital gains tax, wealth tax or similar fiscal laws. Whilst companies will normally pay taxation in the usual way in countries where they engage in business, using a BVI company as a fund vehicle can create a tax neutral layer in the overall fund structure thereby streamlining and simplifying the taxation involved to the relevant domicile of each individual investor.
Speed – Subject to satisfying relevant due diligence requirements, companies can be incorporated quickly by licensed registered agents via the BVI's online electronic interface, usually within 24 hours.
Names – BVI companies may be incorporated with foreign character names (e.g. a Chinese name) in addition to their English name.
Cost – BVI companies are still comparatively inexpensive compared to other jurisdictions such as Cayman and Bermuda, and most mid-shores such as Hong Kong or Singapore. The regulatory fees, both on formation and on an annual basis therefore are also competitive.
Confidentiality – Although safeguards exist to prevent abuse of corporate confidentiality in relation to money laundering and international crime, law abiding companies can exist with the confidence of privacy.
Corporate flexibility – Company law in the BVI is designed to provide the maximum flexibility consistent with common law legal systems. For example, companies are permitted to undertake any lawful act or activity, and there are no strict rules relating to corporate benefit which allows asset managers to get extremely creative with their product which could have significant benefits for investors.
With the growing increase of regulations globally, the BVI Approved Manager regime coupled with the BVI Incubator Fund and BVI Approved Fund is really a breath of fresh air for enterprising emerging managers.
As a whole, the BVI offers a well-rounded package with experienced and highly qualified service providers, along with a regulator (BVI FSC) who understands the commercial reality of the industry. The BVI continues to lead the way with innovation in the investment funds space and as such, for many managers globally, the BVI is without question – the best option.