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.
Advantages of BVI Investment Funds
- High-level of corporate governance and a flexible corporate statute with the BVI Business Companies Act 2004
- Alternative Investment Fund Managers Directive 2011/61/EU compliance with BVIs opt-in regime
- Private equity and venture capital managers are welcomed with a ‘lighter touch’ regulatory regime
- Targets smaller fund managers with the Approved Manager Regime and the specialised Approved and Incubator Fund products
- Robust commercial court
- Competitive incorporation fees
Types of BVI Investment Funds
BVI Incubator Hedge Funds
The BVI Incubator Fund is a start-up fund for those managers who want to keep costs in line until they have a track record to attract sufficient subscriptions to make the funds viable for the long term. The fund may have:
- a maximum of 20 investors;
- a minimum initial investment of US$20,000; and
- net assets of up to US$20 million.
The benefit of an Incubator Fund is that it does not require an offering memorandum, licensed investment manager, administrator, custodian or auditor. Rather, investors must only be provided with a written description of the investment strategy and a written outline of the risks including the risk of investing in an Incubator Fund. The Incubator Fund can only be approved for a two year period.
BVI Approved Funds
A BVI Approved Fund is a low cost hedge fund vehicle which allows a manager to bring together a small number of investors. This fund is cost-effective and designed to avoid the regulatory burden when establishing a small fund. An approved fund may include:
- a maximum of 20 investors;
- no minimum investment; and
- net assets of up to US$100 million.
Unlike the Incubator Fund, the Approved Fund has no term limit.
BVI Professional Funds
A Professional Fund is a mutual fund whose interests are made available only to professional investors and the initial investment of each investor (other than certain “exempted investors”) is not less than US$100,000.
BVI Private Funds
A Private Fund is a mutual fund whose constitutional documents specify either that it will have no more than 50 investors or that the making of an invitation to subscribe is to be made on a “private basis” only.
Funds Formation in the British Virgin Islands
Funds in the BVI may be incorporated as business companies or formed as partnerships or unit trusts.
Segregated Portfolio Companies (SPC)
Funds can be incorporated as an SPC. With an SPC, any asset linked to a particular portfolio held as a separate fund for that segregated portfolio, will not form part of the general assets of the SPC and will not be available to meet the liabilities of any other segregated portfolio. Once established, a segregated portfolio company constitutes a single legal entity; each segregated portfolio does not. The SPC can issue shares and declare dividends on its own account, as well as with respect to each individual segregated portfolio. As such, the SPC is a particularly useful vehicle for multi-class or umbrella funds which wish to offer different investment strategies to investors.
Unit trusts are suitable for a variety of investment structures, including the stand-alone trust and the umbrella trust. When properly structured, a unit trust is exempt from BVI income tax, estate tax, inheritance tax, succession tax, gift tax, or any other duty.
Counsel for BVI Investment Funds
Our lawyers advise on fund formation and structuring in the British Virgin Islands, including constitutional and contractual documentation, incorporation, registered office and administration services, regulation and compliance, as well as restructuring, liquidation, insolvency and winding up of funds.
With offices in the major international financial centres of Hong Kong, London and Singapore, we are more than able to provide you with our responsive legal services. We are also well equipped to service the Middle East North Africa market, with lawyers who have thorough expertise and understanding of the region.