The Securities and Investment Business (Incubator and Approved Funds) Regulations, 2015 (the Regulations) which came into force in the British Virgin Islands (BVI) on 1 June 2015, creates two new, lightly regulated open-ended funds products – the Incubator Fund and Approved Fund. These dynamic new fund products complement the existing offering of Private Funds, Professional Funds, and Public Funds in the BVI. Incubator and Approved Funds are not required to obtain a licence, or be recognised or registered under the Securities and Investment Business Act, 2010, and will not be subject to the Regulatory Code, 2009.
These funds fill the gap in the market for start-up and non-institutional managers looking to test an investment strategy on a trial basis and to establish a track record within a low-cost structure before committing to convert to a more sophisticated fund product.
The Incubator Fund
- Functionaries such as an administrator, custodian, investment manager or auditor are not required to be appointed.
- An Incubator Fund is restricted to persons who have been invited to invest and must operate within the following limitations:
- limited to a maximum of 20 investors;
- minimum initial investment of no less than USD20,000 per investor; and
- aggregate net asset value of the fund may not exceed USD20 million.
- No audit is required to be filed by an Incubator Fund with the Financial Services Commission (Commission).
- An Incubator Fund is permitted to operate for two years (with the possibility of seeking a one year extension from the Commission).
The Approved Fund
An Approved Fund is aimed at friends and family investors and has a higher net asset value threshold. There is no minimum investment requirement for investors of an Approved Fund (similar to a Private Fund) and is not subject to a limited period of operation as compared with the two year limited duration of an Incubator Fund.
- Limited to a maximum of 20 investors.
- Aggregate net asset value of the fund may not exceed USD100 million.
- An Approved Fund is required to have an administrator, but it is not necessary to appoint a custodian, investment manager or auditor.
- No audit is required to be filed by an Approved Fund with the Commission.
Incubator Funds and Approved Funds are not required to have an offering memorandum, however a document describing the investment strategy and certain risk warnings prescribed under the Regulations must be provided to investors. In practice a term sheet or short form offering memorandum is likely to be prepared and provided to investors in the fund.
If any of the operating limitations as outlined above are exceeded by an Incubator Fund or Approved Fund, they will need to take one of the following actions:
- submit an application to the Commission for conversion into a Private Fund, Professional Fund, or Approved Fund (in the case of an Incubator Fund);
- proceed into voluntary liquidation; or
- amend its memorandum and articles of association to cease operations as a mutual fund.
Incubator and Approved Funds can commence operations two business days following receipt of the application by the Commission. The application fee for approval of either fund is currently USD1,500 with an annual renewal fee payable of USD1,000.
Professionals with experience in Asian jurisdictions as well as a host of offshore jurisdictions, Marbury is fully equipped to answer any and all questions relating to incorporation in the BVI and the advantages of doing so for your particular investment needs. For more information, please contact your usual Marbury representative or firstname.lastname@example.org.