Simon Schilder, Ogier BVI corporate and investment funds partner

BVI to introduce new investment manager licence for smaller hedge funds

The British Virgin Islands Financial Services Commission (FSC), the jurisdiction’s financial regulator, has published guidelines for a new type of investment management licensing regime targeting non-institutional investment managers of small and mid-sized investment funds.

The Investment Business (Approved Managers) Regulations, 2012 – known as the Approved Managers Regulations – come into force on 10 December 2012.  The regime will provide eligible investment managers of BVI funds opting to also domicile their investment management vehicles in the jurisdiction with a streamlined regulatory framework, acknowledging both the sophistication of investing into such funds and the lower systemic risk posed by these funds to the global financial system.

“We see the Approved Managers Regulations as particularly appealing to start-ups or smaller investment managers that want to set up and manage funds in the most efficient and effective way possible, given their size and investor base,” says Ogier BVI corporate and investment funds partner Simon Schilder (pictured), who has also been actively involved in the private sector consultations for the new regulations. “We believe the new regime will be an appealing product for eligible investment managers and will represent a cost effective option which is, at the same time, in tune with current regulatory requirements and international standards for the oversight of investment managers.”

Recent analyses show the small hedge fund market as growing, despite difficulties these funds typically face in securing capital. A report by Barclays Capital identified a trend beginning in 2011 towards an increasing share of allocations going to funds with less than USD1bn in assets. The Barclays research shows this trend will continue throughout 2012.  The research also reported investors indicating a 77-percentage point tilt in favour of increasing allocations to small funds, compared with a 10-percentage point tilt toward large funds (with assets under management of USD5bn).

Among the requirements for eligibility under the Approved Managers Regulations are for the investment manager to:

• Be a BVI company or limited partnership;
• Act as investment manager or advisor to either a BVI licensed private or professional fund; a closed-ended fund domiciled in the BVI with characteristics substantially similar to either a BVI licensed private or professional fund; or a foreign fund investing substantially all of its assets in a BVI domiciled fund;
• Satisfy the FSC’s fit and proper test;
• Maintain, in the case of open-ended funds, aggregate assets under management of USD400m and, in the case of closed-ended funds, aggregate capital commitments of USD1bn; and
• File an application for approval not less than seven days prior to the intended commencement of business.

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