BVI Hedge Funds
Advantages of setting up a BVI fund
The British Virgin Islands (“BVI”) is the second largest offshore jurisdiction for hedge funds globally and a prominent and flourishing jurisdiction for establishing offshore investment funds, generally. The BVI’s flexibility in offering alternative regulatory regimes for small to mid-sized hedge fund groups makes it an efficient proposition to establish investment managers and advisers in the BVI. This is one of the many advantages that makes the BVI a leading domicile for offshore hedge funds.
BVI offers a variety of fund types, suitable to cover a range of different investment products and investors. Hedge funds domiciled in the BVI make up approximately.
One quarter of all offshore hedge funds established worldwide
Closed-end funds are not subject to direct regulation in the BVI.
Hedge funds domiciled in the BVI make up approximately one quarter of all offshore hedge funds established worldwide. This popularity is due to the many advantages of establishing an investment fund in the BVI including a tax neutral environment and a stable political and economic jurisdiction committed to remaining fully compliant with all supra-governmental bodies.
Additionally, there are no regulatory restrictions on investment policies or requirement to appoint local directors, local functionaries or local auditors.
Advantages of setting up a BVI fund
- One of the leading offshore jurisdictions for investment funds
- Perfect for small scale funds with no minimum requirements of assets under management
- Cost effective jurisdiction for fund formation
- Simplified due diligence procedures for investors
- Flexibility in the choice of investment portfolio and internal structure of the fund itself
- Minimum or zero taxes on capital gains, profits and dividends accrued to the fund
- Well-regulated jurisdiction with a long and proven track record
- No exchange controls
- BVI Mutual Funds can be registered in a wide range of organisational forms
- Licensed and experienced professionals
- Straightforward and flexible fund administration requirements
Mutual funds and non-BVI investors are exempt by legislation from all tax.
Types of funds
There are a number of BVI fund products suited to everyone from the startup manager setting up an incubator fund to established institutional fund managers with billions under management.
- Incubator Fund
- Approved Fund
- Private Fund
- Professional Fund
- Public Fund
- BVI Incubator and Approved Fund
An incubator fund has a minimum investment requirement of US$20,000, a cap on net assets of US$20M and limit of 20 investors. An incubator fund does not need to appoint an administrator, custodian, investment manager or auditor.
An approved fund has a net assets cap of US$100M and no more than 20 investors are permitted, but with no minimum investment criteria. An approved fund may operate without appointing a custodian, investment manager, or auditor, but will need an administrator.
Applications for approval as an Incubator Fund or an Approved Fund are made to the Commission and must be accompanied by:
- the constitutional documents;
- details of the investment strategy;
- a prescribed form of investor warning; and
- an application fee of 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 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 or professional fund, or may wind up at the end of its term. An Incubator Fund can convert to a private or professional fund or to an Approved Fund by making an appropriate application to the Commission.
In keeping with the cost-efficient approach to these vehicles, service provider requirements are minimal. Each fund is required to appoint an authorized representative in the BVI, and an Approved Fund is required to have an administrator at all times. However, there are no mandatory custody requirements.
There is no requirement for the issuance of an offering document and where the fund determines not to issue one, the required investor warnings can be set forth in a separate term sheet.
Otherwise, an Incubator Fund and Approved Fund are required by the regulations to:
- Pay an annual fee of US$1,000 on or before 31 March of each year
- Have a minimum of two directors at all times, one of whom must be an individual
- Notify the Commission of any change to any of the information submitted to the Commission in its application; for instance, in relation to it or its conduct (which has or is likely to have a material impact or Significant regulatory impact), directors, etc.
- Prepare and file annual financial statements to the Commission (with no requirement for an independent audit)
- File bi-annual returns with the Commission
Since the introduction of the Regulations we have had experience establishing a number of these funds and we expect that, as new potential managers learn about these structures, they will continue to prove attractive vehicles to start up managers, family offices and others looking for a simple, quick and cost effective way to establish a lightly regulated investment vehicle.
Our fund services
Our Business Development Managers will guide you through the whole process – from choosing which jurisdiction is best for you, to obtaining your fund license and day-to-day management.
Our services include:
- Advice and assistance in setting up your offshore fund
- Ongoing support, from day-to-day administration to assistance with corporate, legal and tax matters
- Fund accounting and valuation
- Risk management and compliance services
- Domiciliation and office rental (if required)
- Audit services