I had the pleasure this morning of headlining (which makes me sound far more like a rock star than a funds lawyer which, just to be clear, is very far from the truth) at the BVI Investment Funds Association breakfast forum, speaking about the new BVI fund products. Whilst I think on occasions I may have expressed a little too much enthusiasm (probably due to the espresso immediately before taking the podium), there was a generally accepted acknowledgement in the room that these vehicles do allow the BVI to properly and actively market itself as the very genuine next best alternative to Cayman to house an offshore fund.
The questions I received from the floor were varied; one interesting discussion point was the KYC obligations of the fund and whose ultimate responsibility it would be to collect identification documents on the investors if the fund does not appoint an administrator. The consensus was that this is likely to fall upon the directors, adding weight and responsibility to the fiduciary duties they already owe to the fund.
Overall, there was a real sense of optimism and when coupled with the fact that the approved manager product is gathering more and more momentum (evidenced by the vast increase in licenses issued in Q1 2015), there is no doubt that the BVI is moving in the right direction.
Lending to Funds – an introduction to subscription finance
“Neither a borrower nor a lender be” wrote Shakespeare and in the aftermath of the credit crunch and the global slowdown, it seems that many banks are reacquainting themselves with the words of the Bard. And when they do lend, they are increasingly looking for more security, “safer” borrowers and higher fees.
On the face of it, a newly launched fund might not have the track record or the assets to persuade commercial lenders to lend monies to it. But these funds do have assets which they can make available to lenders – the uncalled capital commitments of their investors.
The impact of FATCA on Cayman and BVI funds
After getting to grips with the EU Alternative Investment Fund Managers Directive, many Cayman and BVI fund compliance departments are now turning their focus to reviewing what they need to do to comply with the US Foreign Account Tax Compliance Act (FATCA). Although Cayman and BVI funds are not directly subject to FATCA, the Cayman Islands and BVI have each introduced legislation implementing FATCA requirements for ‘financial institutions’ to identify and report certain US accounts. The Cayman Islands and BVI have also each entered into an intergovernmental agreement with the United Kingdom (UK FATCA) which set out similar due diligence and reporting obligations for ‘financial institutions’ to identify and report certain UK accounts, without imposing a withholding tax regime for non-compliance (as applies under FATCA). The majority of Cayman Islands and BVI mutual funds fall within the definition of an ‘investment entity’ and are generally classified as a ‘financial institution’ for FATCA and UK FATCA purposes and so have information gathering and reporting obligations.
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.