Thursday, 28 May, 2015

New BVI Fund Products: Incubator Fund and Approved Fund

With the recent publication of the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015 (the 'New Fund Regulations') on 18 May 2015, the British Virgin Islands' Financial Services Commission ('FSC') has introduced two lightly regulated funds products that will appeal to start-up managers, family offices or groups of friends and family investors.

Incubator Fund
The Incubator Fund is a start-up fund product which offers investment managers an easy to set up and cost-efficient solution for implementing an investment strategy with low up-front costs and limited ongoing obligations. The key features of an Incubator Fund are:

a) suitable for 'sophisticated private investors' only (as defined in the New Fund Regulations, a 'sophisticated private investor' is 'a person who has been invited to invest in an incubator fund and the amount of his or her initial investment is no less than US$20,000')

b) maximum of 20 investors

c) the fund cannot exceed US$20 million in relation to the aggregate net asset value of its investments

d) there are no requirements to appoint an administrator, custodian or manager

e) no audit requirement

f) approval status is limited to two years (with the possibility of seeking an extension from the FSC for an additional 12 months) before the Incubator Fund must either convert into a private fund, professional fund or approved fund; or cease opeating as a fund

Approved Fund
An Approved Fund is similar to a BVI private fund, however it is subject to less regulation, has no requirement for an auditor, has lower ongoing costs and is aimed at the family office/friends and family market. Key features are:

a) maximum of 20 investors

b) the fund cannot exceed US$100 million in relation to the aggregate net asset value of the fund's investments

c) must have an administrator, but there is no requirement to appoint a manager or custodian

d) no audit requirement

e) the Approved Fund can commence business two business days following receipt of the application by the FSC

Ongoing obligations
There are limited ongoing obligations involved for Incubator Funds and Approved Funds once licensed:

  • each must submit unaudited financial statements to the FSC on an annual basis
  • Incubator Funds must submit semi-annual returns by 31 January and 31 July, and Approved Funds must submit annual returns by 31 January
  • similar to alternative BVI funds, Incubator Funds and Approved Funds must have at least two directors, one of which must be an individual, if it is a corporate entity and a locally-based authorised representative
  • the fund must notify the FSC within 14 days of any changes to the information provided in the approval application or in relation to any matter which is likely to have a material impact on the fund