BVI funds – no bad options

Related Topics

Flexibility has long been a cornerstone of the British Virgin Islands’ financial services industry. BVI companies are often used as public companies and listed on major exchanges worldwide, but they can just as easily be used as an asset-holding vehicle for an individual or family office. This trend continues with BVI funds which offer a variety of choices to suit different managers, investor types, and structures.

Established BVI fund types

The flagship BVI fund is the professional fund, the typical choice for most hedge funds, funds of funds, and alternative investment funds. The professional fund is ideal for high-net-worth investors. Investors in professional funds are required to subscribe for at least $100,000 and must have a net worth (alone or jointly with their spouse) of at least $1m or must be institutional investors.

The professional fund must have an investment manager, administrator, custodian, and auditor, with exemptions available for the investment manager and custodian requirement. The fund must also submit a full-offering memorandum with subscription documents to the BVI regulator - the BVI Financial Services Commission (FSC) – for approval.

Private funds are limited to 50 investors and must be marketed on a private basis only. This fund has found favour with family offices because it offers the internal structure of a hedge fund combined with the flexibility and privacy of a private investment vehicle. Private funds do not have any restrictions regarding the make-up of investors and no cap on their assets under management. Any family member can qualify as an investor since there is no net worth hurdle to cross. The fact that the fund cannot market except on a private basis also fits the family office structure as there is no need for marketing to the broader public.

Public funds are retail funds that other jurisdictions would classify as “mutual funds.” These funds are open to retail investors; therefore, there is no net worth requirement for investors. Public funds are the only BVI fund offering available to the general public. The main difference between the public fund, on the one hand, and the professional and private fund, on the other, are their requirements for setup and ongoing compliance. 

As might be expected for a public-facing investment entity, the setup requirements are more detailed. The entity must have a prospectus that meets the specific criteria included in the BVI public funds code, such as the requirement to maintain a compliance officer; and is subject to a level of supervision similar to other licensed financial entities.

Newer fund types

In 2015 the BVI introduced two new funds: the approved fund and the incubator fund. 

The approved fund is often considered a light version of the BVI private fund. It is limited to 20 investors and assets under management of $100m and, like the private fund, has no minimum net worth requirement. This makes the fund suitable for smaller family offices or other closely connected investors. The fund is required to have an administrator, but otherwise, no additional functionaries are mandated. An approved fund does not need a detailed offering memorandum. It is sufficient to file a summary of terms, including a description of its investment strategy and the prescribed investment warnings to investors.

The incubator fund is limited to $20m assets under management, 20 investors, and subscriptions of at least $20,000, thus earning the familiar name – the 20/20/20 fund. This fund is very different from other open-ended BVI funds. It is designed to appeal to emerging fund managers looking to build a track record but don’t have access to large amounts of investor capital – often limited to family and friends – and need a low-cost fund to get started. In addition to the fund’s investors and AUM limits, the fund is limited to a two-year existence. At the end of two years, the incubator fund must convert to a private, professional, or approved fund or wind down its operations. The fund can apply to the BVI regulator for a one-year extension, but in the end, it must either convert to a different fund form or wind down.
The incubator fund is not required to have any fund functionaries, contributing to its low operating cost. Also, like the approved fund, it is only necessary to file a summary of terms, including a description of its investment strategy, and give the appropriate investment warnings. The fund is not required to produce a full offering memorandum.

Private investment fund regime

In 2019, the BVI introduced the private investment fund regime, which now regulates closed-ended funds as private 
investment funds.

The requirements for recognising a private investment fund (PIF) are similar to those of professional and private BVI funds. As such, a PIF comes in three types: (a) a PIF limited to only 50 investors; (b) a PIF limited to investment marketing on a private basis; and (c) a PIF whose investors are limited to certain institutional and professional investors, i.e., persons whose net worth is at least  $1m.

One departure from the position regarding professional and private funds is introducing the “appointed person,” who is responsible for managing, valuing, and safekeeping fund property. Each PIF must have and notify the FSC of the appointed persons’ details.
Noteworthy similarities

So far, we have focused on the differences between the types of BVI funds (see table below), but some similarities are noteworthy. 

  • All funds must have at least two directors, an authorized representative, and a Money Laundering Reporting Officer.
  • All funds have prudential reporting requirements.
  • All funds must have a valuation policy, complying with the particular fund’s relevant regulations.
  • BVI funds are investment agnostic. There are no restrictions on the type of investment or investment strategy in which a manager might engage.
  • Funds can be set up as BVI business companies, partnerships, or unit trusts.
  • Economic substance requirements do not apply to BVI funds.

An important note: When a BVI fund requires functionaries, they must be based in “recognised jurisdictions.” The recognised jurisdictions list includes leading countries worldwide, such as the United Kingdom, United States of America, Singapore, China, Hong Kong, South Africa, Switzerland, Bermuda, and Cayman, among others. Functionaries in recognised jurisdictions do not require FSC approval. However, while a fund may appoint a functionary not based in a recognised jurisdiction, such appointment will require FSC approval. 

It is clear that no matter where you are based, the type of investors you want to pursue, or the amount of capital to be managed – there are no bad options when it comes to BVI funds. 

Author Profile