There are a number of ways to structure your offshore fund and the best option for you will depend largely on the location of the manager, your investor base and the type of investments that the fund will make. I have set out a summary of the three most common structures to use for offshore funds in this post.
It is nearly three years since the BVI launched its Approved Manager Regime. The introduction of the Approved Manager Regime at the end of 2012 was the jurisdiction’s first step towards putting together a complete package focused on the smaller and emerging manager and it has been a great success.
My Cayman colleagues will probably jump up and down when I say this; but it is such a success that we now see Cayman funds being set up with BVI Approved Managers, given that the Approved Manager out-performs the Cayman equivalent, the Cayman Islands Securities and Investment Business Law (SIBL) Exempted Manager, both on cost (establishment and ongoing) and because it has the stamp of being a regulated product, which the Cayman equivalent does not. In addition, the Approved Manager offers greater flexibility, as a Cayman Exempted Manager is limited to only acting for funds whose investors fall within the definitions of a “sophisticated investor” or “high net worth person” under SIBL, whilst the Approved Manager has no such limitation.
It seems to have fallen upon me to talk about all the things that can go wrong with your fund! As it happens, suspending NAV calculations, subscriptions and redemptions is not the end of the world that it was once considered. If you keep in mind a few key considerations, chances are you will survive this challenge.
If you want to de-register a BVI fund by cancelling its certificate of recognition, the chances are things haven’t gone as planned. Perhaps the launch was not a success and the fund never traded, perhaps the launch went well but performance was poor and you are winding up. Or maybe things are more positive, you have just realised that you could operate as a closed-end fund and it makes financial sense to de-register or you think you would be better off domiciled in another jurisdiction. Whatever the reason, don’t be down. In the words of Henry Ford, “Failure is only the opportunity to more intelligently begin again”. The good news is, de-registering is pretty easy so we can save you a headache!
Last month, the BVI launched the incubator fund and the approved fund. These fast and low-cost options for managers wanting to set up a regulated fund are a great addition to the BVI funds industry. It is not surprising that everyone is talking about them. If you have missed this, have a read of my last post.
It is taking the internet a bit of time to catch up with the developments in the BVI and I have noticed that much of the general information available on BVI funds is out of date.
For anyone thinking of establishing a new fund in the BVI I have set out a brief guide to each of the BVI fund products below. I try to limit the use of acronyms but you will need to know that the funds industry in the BVI is governed by the Securities and Investment Business Act (SIBA) and regulated by the Financial Services Commission (FSC).
An incubator fund will be restricted to having a maximum of 20 investors, each investing no less than $20,000, and a cap on assets under management of the fund of $20,000,000. The incubator fund is aimed at the start-up manager looking to launch quickly (approval is given within two days of submitting a complete application) with low cost, minimal regulatory hurdles and no mandatory functionaries. It can operate as an incubator fund for up to three years. At that point, if the fund has proved to be viable, it will need to convert to a private, professional or approved fund. Alternatively, it can wind up its operations.
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.
For many managers, having a fund which is regulated and subject to overreaching powers of a regulator (whether the British Virgin Islands Financial Services Commission (FSC) or The Cayman Islands Monetary Authority (CIMA)) can be advantageous or essential when attracting investors. On the other hand, a manager seeking to establish a track record whose investors comprise only friends and family, may see advantages in having an unregulated fund, without any of the ongoing obligations that would apply if it were regulated.
Whichever camp you fall into, you will want to know how to structure your fund to ensure the appropriate level of regulation for your purposes. Continue reading