Over one million companies have incorporated in the BVI. While traditionally, many of these companies have been used as asset holding vehicles, the robust global economy has led to the increased use of BVI companies as private equity or investment funds. Given today’s demanding and fluctuating economic climate, flexibility is key; and BVI investment funds allow for maximum flexibility.
One of the key reasons the BVI is chosen by institutional investment managers and entrepreneurial individuals alike to set up their fund vehicles is the flexibility the BVI’s legislative regime provides for structuring funds.
BVI fund service providers (investment managers, administrators, custodians and auditors) do not need to reside in the BVI, so a BVI fund can be run from anywhere in the world.
Additionally, the BVI provides political stability, an efficient and reliable legal system, and experienced industry practitioners on the ground. This foundation has led to a wide range of clientele who seek the BVI for funds, from well-established institutional fund managers with billions in assets under management to individuals wishing to set up incubator funds with limited start-up capital.
Lastly, the BVI is not only flexible in terms of structuring vehicles; it is flexible in terms of costs. The costs involved in setting up a BVI fund are modest and extremely competitive compared with other offshore jurisdictions
Structuring Your Fund
The most commonly used vehicles to structure a fund are the BVI Business Companies (BCs) limited by shares and the segregated portfolio company (SPC).
The BC is useful for a fund utilising a single investment strategy, investing in securities of a similar nature and risk profile, or focusing on one type of investment product. It can also be used to structure an umbrella fund.
The SPC is useful for BVI funds that employ a multi-investment strategy for multiple investment products that carry different risks and realisation timelines. The SPC structure provides for the “ring fencing” of assets and liabilities with each portfolio which prevents contamination from other portfolios within the SPC.
Approved Manager Regime
The Approved Manager Regime, introduced in December 2012, has made the BVI an extremely attractive jurisdiction for investment funds. Taking into account the relative risk, nature, and complexity of the investment business, the Approved Manager Regime strikes the right balance between regulation and flexibility. It has been remarkably successful with start-ups, family offices and closed-ended investment managers of BVI funds and non-BVI funds.
Prior to the Approved Manager Regime, all BVI managers of open-ended and closed-ended funds were required to be fully licensed under the provisions of the Securities and Investment Business Act, 2010 (SIBA). This meant that regardless of the size of investment, start-up managers and those managing larger sums alike faced the same regulatory compliance costs.
The application process under the Approved Manager Regime provides for eligible investment managers and advisers to submit a short application to the Commission and commence business just seven (7) days later without the need for formal license approval, compared to a minimum of four weeks with SIBA. Where time to market is critical, the approved manager product is very attractive.
As a result of the Approved Manager Regime, the BVI’s large market base of start-up and existing mid-sized managers has grown, complementing the BVI’s existing private and professional fund regime and growing closed-ended fund formation business.
Incubator Funds & Approved Funds
The BVI further enhanced its fund product offering with new fund regulations that came into force on 1 June 2015. The new Incubator Funds and Approved Funds are designed to provide a fast and cost effective method for managers to start open-ended funds. The two new fund types complement and enhance the current range of funds and investment business licences offered by the BVI under SIBA. They provide more flexibility to smaller capitalised funds, such as friends and family and start-up funds and create the ability for qualifying open-ended funds to be approved to conduct business within a lighter regulatory framework under SIBA.
Both of the new fund types, which must be limited by net asset value and number of investors, recognise that the economics of starting up and running a small fund can make appointing a full range of service providers to the fund uneconomical and so are designed to give the principals of such funds the choice as to whether they do, in fact, choose to appoint a separate manager and custodian, and, in the case of an incubator fund, an administrator. To counterbalance this, the fund must make robust disclosure of their structure and the risks inherent in not having such service providers.
The incubator fund is designed for managers who are looking to start an investment strategy on a trial basis with sophisticated investors. If the strategy succeeds within the prescribed timescale, the Regulations provide a seamless route for the fund to be recognised or approved as a private professional or approved fund, depending on the manager's future plans for growth of the fund. If the strategy does not succeed, the regime allows for an incubator fund to close down or convert to an ordinary company.
The approved fund is designed for smaller strategies and friends and family funds and has a higher net asset value threshold and no limit to the length of time if may qualify as an approved fund. It also differs from the incubator fund in requiring an administrator.
It will be possible to commence business as an incubator fund or an approved fund two business days following the day the BVI Financial Services Commission receives a completed application in respect of the fund. A licence will not be provided by the Commission but it will be possible to obtain a certificate from the Commission evidencing the status of the fund.