Today is the kind of day that we offshore funds lawyers get really excited about. Today the BVI has launched two new fund products: the incubator fund and approved fund. The legislation creating these products and which is now in force is the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015.
The new products are specifically targeted at smaller and emerging managers and provide them with the option of a lightly regulated and cost-effective open ended fund structure. It is an offering that we have been working with the government and other funds professionals in the jurisdiction to develop for a number of months and which we feel very strongly will be an excellent addition to the BVI’s funds industry.
Since the announcement of the upcoming launch of these new products, we and our colleagues in other offices have been inundated with enquiries from around the world. This is fantastic news although, given that no similar regulated products are being offered in any other long established and well respected funds jurisdiction, not at all surprising. In anticipation of strong demand for these products, we have been putting together appropriate legal fees packages for launching and servicing these funds. A brief description of the products is set out below.
The incubator fund
The incubator fund is aimed at emerging managers and allows them a two to three year incubation or “validity” period to test a strategy and establish a track record. During that period, the fund can operate with light regulation, no mandatory services providers and without carrying out an audit, provided it remains within the following relevant thresholds:
- no more than 20 investors;
- each investor must be a “sophisticated private investor”, which means that they were invited to invest and have made a minimum initial investment of US$20,000; and
- the net assets of the fund must not at any time exceed US$20million.
If the incubator fund is successful, it can use the simple conversion process at any time before the end of the incubation period to convert into a private, professional or approved fund. If it is not viable, the fund must choose whether to wind up operations or convert to a simple BVI business company.
The approved fund
The approved fund is aimed at managers looking to establish a fund with a private offering to a small group of investors on a longer term basis. Like the incubator fund, approved funds can operate with no manager or custodian and without carrying out an audit. To qualify as an approved fund, the fund must have a maximum of 20 investors and its net assets must not at any time exceed US$100 million. The approved fund is required to appoint an administrator to ensure suitable oversight of its operations.
Low cost and rapid approval
Both the incubator and the approved fund will be fast and inexpensive to launch given:
- the fast-track application process, which will permit incubator or approved funds to commence business within two business days of submitting a complete application to the FSC;
- the mandatory information to be contained in the offering document of the incubator or approved fund has been kept to a minimum and many will operate with short form term-sheet; and
- the limited requirements to appoint service providers.
For more information read our complete legal update or do not hesitate to get in touch.