In 2015 the progressive jurisdiction that is the BVI (British Virgin Islands) recognized there was a gap in the Fund Setup Market for a lightly regulated model of Fund.
Hence regulations were passed allowing for the set-up in the BVI of 2 new models of Mutual Fund ie Incubator Funds and Approved Funds.
Prior to 2015 the only option for a successful trader/prospective fund manager wanting to dip his or her toe into the Fund Management Market was to set up a (non- licensed) Closed End Fund ie a Fund wherein the Investor was/is required to lock in his funds for a fixed investment period.
This limitation often caused a promoter difficulty in fund raising as most investors would prefer a mechanism that would entitle them to withdraw their funds on demand if desired or needed.
The (relatively) new BVI Regulations enable Incubator and Approved Funds to be set up and launched on a fast track, low cost basis with limited 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 can take in no more than of 20 investors. An Incubator Fund does not need to appoint an Administrator or a Custodian or an Investment Manager or an Auditor.
An Approved Fund has a net asset cap of US$100 Million and no minimum investment requirement but is limited to no more than 20 investors. An approved fund is required to appoint an Administrator but does not need to appoint a Custodian or an Investment Manager or an Auditor.
An application for approval as an Incubator Fund or an Approved Fund must be lodged with the Commission and be accompanied by:
- the constitutional documents;
- details of the investment strategy;
- a prescribed form of investor warning; and
- an application fee (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 incubator fund
An Incubator Fund has a limited life span 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 Fund or a Professional fund, or may be wound up at the end of its term. An Incubator Fund can convert to a Private Fund or a Professional Fund or to an Approved Fund by lodging the required/prescribed application with the Commission.
Part of what keeps the set up and admin costs low is that service provider requirements are minimal:- Each fund is only required to appoint an Authorized Representative in the BVI and an Approved Fund is required to have an Administrator at all times. Pleasingly, there are no mandatory custody requirements and there is no requirement for the issuance of an Offering Document. If/where the fund decides to not issue an Offering Document, the required investor warnings can be set forth in a separate term sheet.
The key regulatory requirements for an Incubator Fund and Approved Fund are:
- An annual fee of US$1,000 is payable to the Commission on or before 31 March of each year
- Must have a minimum of two directors at all times, one of whom must be an individual
- The Fund Entity must notify the Commission of any change to any of the information submitted to the Commission in the set-up application; (eg you’d need to advise of any conduct which has, or is likely to have, a material impact or significant regulatory impact, changes to directors, changes to ownership/promoter structure etc).
- Prepare and file annual financial statements with the Commission (note there is no requirement for an independent audit)
- Twice a year you must file a return with the Commission
OCI Service Etc fees
We can assist you to register an Incubator Fund in the BVI. Our fees would be as follows:
- Incorporation of the fund will be $2,150 Annual renewal will be $1,750
- Professional fee for application with FSC for Fund licence $1500 (note if the application becomes complicated additional charges will apply)
- FSC application fee $1500 or $750 after June, (annual renewal will be $1,500)
- Authorized Representative fee effective from application $1,600 per annum
- For Administration we can certainly do this at competitive rates. The specific fees will depend upon various factors such as frequency of NAV, investment strategy, number of investors etc… By way of example, if the Fund only requires an annual NAV and holds a single or minimal number of easy to value positions and has only a handful of investors, we could do the Admin for as little as US$12k-$14k per annum/NAV. However if the Fund wants monthly NAVs and has multiple, frequently traded positions the fees would start in the region of US$29,000.
(The above assumes that the authorized share capital figure, as stated in the Company’s articles of Association will be no greater than $50,000. If you require a higher amount of authorized share capital additional fees are payable to the BVI registry both at incorporation and yearly thereafter, on a sliding scale).
Documents etc Required
The following documents are required for the application:
- Instruction Sheet
- FSC application form
- Notarized passport and proof of address for each director, shareholder and beneficial owner
- Bank Reference for each director, shareholder and beneficial owner,
- Professional reference for each director, shareholder and beneficial owner
- Police Certificate for each director, shareholder and beneficial owner
- Resume for each director
- Form A application for the Directors (2 minimum)
- Offer document ie if you have prepared your own, (We can also assist with drafting of same. We can draft a standard offering document for $US1,500).
The application process can take anywhere from 8 to 16 weeks depending on the complexity.
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