BVI Hedge Funds
Make up approximately one-quarter of all offshore hedge funds established worldwide
BenefitsHedge funds domiciled in the BVI, which are also known as BVI Incubator Funds, make up approximately one-quarter of all offshore hedge funds established worldwide. This popularity is due to the many advantages of establishing an investment fund in the BVI including a tax neutral environment and a stable political and economic jurisdiction committed to remaining fully compliant with all supra-governmental bodies. Additionally, there are no regulatory restrictions on investment policies or requirements to appoint local directors, local functionaries or local auditors.
Types of Funds
Hedge FundAn incubator fund allows emerging managers to engage in a two-year “validity” period to establish a track record and to test its viability. During that period, the fund can operate with light regulation, no mandatory service providers and without conducting an audit. Another benefit of establishing such a fund in the BVI is the fast track approval process, which enables an incubator fund to commence business just two business days after submitting a complete application. The maximum number of investors during this time is 20 and each one must invest at least US$20,000. The incubator fund’s net assets may not exceed US$20 million at any time. At the end of the validity period, the fund must convert to a private, professional or approved fund. Alternatively, if the fund is not deemed viable it must wind down its operations.
BVI Incubator Funds – approved fundThe BVI offers the approved fund for managers who want to establish a private offering to a small group of investors on a longer-term basis. The number of investors is capped at 20 and net assets may not exceed US$100 million. However, there is no minimum initial investment required and the fund is not required to appoint an auditor, a manager or a custodian. It is required to appoint an administrator to ensure there is some suitable oversight of its operations. This type of fund also benefits from the BVI’s fast track approval process and may receive approval to commence business within two days of submitting an application to the FSC.
Private FundPrivate funds do not have a minimum initial investment amount for each investor or any “professional” or “sophistication” test for investors. This makes them popular with start-up managers, allowing friends and family offerings. To qualify as a private fund, the fund must either have no more than 50 investors or only make a private invitation to subscribe for or purchase fund interests. Private funds must be recognised by the FSC before they carry on business. A fund will be regarded as having commenced its business when it publishes a prospectus or other document inviting to purchase or subscribe for shares of the fund.
The most popular category, professional funds make up approximately 70 per cent of all regulated funds in the BVI. The interests may be made to either professional investors or exempt investors. A professional investor is a person:
- whose ordinary business involves the acquisition or disposal of property of the same kind as the property of the fund; or
- who, whether individually or jointly with a spouse, has a net worth in excess of US$1,000,000.
The minimum initial investment for a professional investor must be at least US$100,000. Exempted investors, on the other hand, do not have a required minimum initial investment. An exempted investor includes:
- the manager, administrator, promoter or underwriter of the fund; or
- any employee of the manager of the fund.
A professional fund may carry on its business or manage or administer its affairs for a period of up to 21 days without being recognised under SIBA.
Public FundA public fund is generally viewed as a retail product, making the regulatory burden considerably higher than that of a private or professional fund. However, a public fund is not subject to any BVI restrictions on the categories or number of investors it may invite to invest in the fund.
BVI Hedge and approved fund
Fund requirementsAn incubator fund has a minimum investment requirement of US$20,000, a cap on net assets of US$20M and a 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 approval as 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 a completed application by the Commission.
Duration and conversion of Hedge FundAn Incubator Fund has a limited life of two 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.
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.
File bi-annual returns with the Commission.
Prepare and file annual financial statements to the Commission (with no requirement for an independent audit).
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.
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