Understanding The British Virgin Islands Investment Funds

The BVI is home to almost one-quarter of all hedge funds in the world, making it the second biggest offshore jurisdiction for hedge fund development. Because of its flexibility in providing alternative regulatory regimes for small to mid-sized hedge fund organizations, building the British Virgin Islands investment funds is a cost-effective choice. Refer to the following article to find out more about some of the advantages of selecting the BVI over other offshore jurisdictions, and overview of its investment funds.

British Virgin Islands investment funds occupy one-quarter of hedge funds in the world

1. Benefits of establishing the BVI investment funds:

The BVI offers many benefits to fund sponsors and investors, including:

• Sophisticated legal system based on English law that is appealable to the Privy Council in the United Kingdom;

• Tax neutral environment;

• Stable political and economic jurisdiction committed to remaining fully compliant with international financial regulatory norms and regulations;

• No regulatory restrictions on investment policies or strategies;

• No requirement to appoint local directors, functionaries, or auditors.

• Quick approval process for professional funds;

• Variety of professional service providers;

• Fairly inexpensive start-up as well as continuing fees and charges.

2. Choosing entity for BVI investment funds:

Investment funds in the BVI can be formed as BVI business corporations, limited partnerships, or unit trusts. Segregated portfolio businesses are also available as a regulated or unregulated product in the BVI.

The BVI Financial Services Commission (BVI FSC) regulates open-ended investment funds and does not regulate closed-ended funds. Closed-ended funds have a fixed capital, so while asset values vary, the number of shares held by the fund does not change over time. Investors have no right to redeem their shares in a closed-ended fund unless the fund's manager agrees. Open-end funds, on the other hand, are made up of shares, units, or limited partnership interests that can be redeemed by fund investors on a regular basis.

3. Type of BVI investment funds:

Offshore funds professionals in the British Virgin Islands offer specialized guidance on various types of fund structuring options

• BVI Incubator Hedge Fund

The BVI Incubator Fund is a fund for start-up managers looking to establish a track record in order to attract enough subscribers to maintain the fund profitable in the long run while keeping costs low.

The fund must stay within the following thresholds:

• a maximum of 20 investors;

• a minimum initial investment of US$20,000 per investor;

• and net assets not exceeding US$20 million.

• BVI Approved Fund

A BVI Approved Fund is another low-cost fund structure that permits a management to gather together a limited group of long-term investors. This fund is low-cost and designed to circumvent the regulatory complexity that comes with starting a tiny fund.

An Approved Fund requires:

• a maximum of 20 investors;

• no minimum investment;

• and net assets of up to US$100 million dollars.

Both Incubator Funds and Approved Funds benefit from a transparent approval procedure that allows them to begin operations two business days after submitting a completed application to the BVI FSC.

• BVI Private Fund

There is no minimum initial investment amount in a Private Fund. As an open-ended fund, it includes constitutional documents that specify:

• The fund may not have more than fifty investors, or

• any invitation to subscribe for or acquire fund interests issued by the fund must be made in “private basic”.

Invitations made on a "private basis" include those sent to specific people with no intention of their shares becoming available to others, or to those with whom they already have a connection (business or otherwise).

• BVI Professional Fund

Professional Funds account for the vast majority of open-ended funds in the BVI and are primarily directed at professional investors or high-net-worth people. An investor in a Professional Fund must make a minimum initial commitment of US$100,000.

• BVI Public Fund

There are no minimum investment requirements for public funds.

These funds are considered retail goods and are subject to more stringent regulation than private or professional funds. A Public Fund must not only comply with the Securities and Investment Business Act 2010 ("SIBA"), but also with the BVI Public Funds Code.

• BVI Private Investment Fund

A new sort of recognized collective close-ended investment instrument. A BVI Private Investment Fund is defined as a company, partnership, or unit trust that collects and pools investor funds for the purposes of collective investment and portfolio risk diversification, and that issues fund interests that entitle the holder to an amount computed by reference to the value of a proportionate interest in the fund's net assets. Under the new rules, most closed-ended and private equity funds will be classified as private investment funds.

4. BVI investment funds can be structured as:

• Business Companies (BVIBC)

A BVIBC is a legal entity distinct from its investors (whose liability is limited by statute).

Shares are not required to have a par value or any capital attached to them.

The directors can also designate distinct series inside each share without changing the fund's structure. BVIBCs are the most regularly utilized vehicle because of their versatility.

• Segregated Portfolio Companies (SPCs)

A SPC is a single legal entity with the statutory power to separate assets and liabilities inside the company's segregated portfolios. The SPC has the authority to issue shares and declare dividends on its own behalf as well as on behalf of each individual segregated portfolio.

As a result, the SPC is a particularly effective vehicle for multi-class or umbrella funds that want to offer investors a variety of investing strategies.

• Unit Trusts

Unit trusts are appropriate for a wide range of investment arrangements, including stand-alone trusts and umbrella trusts. A unit trust does not have independent legal personality under BVI law and so does not have the same statutory restricted liability as other arrangements. As fund structures, unit trusts are rarely employed. A BVI Investment Fund and its investors, regardless of form, are immune from BVI income and capital gains taxes.

• Limited Partnership Act (LPA)

The new BVI Limited Partnership Act was recently modified to create a contemporary and flexible partnership structure, particularly for persons pursuing investment operations.

The LPA is novel and will be appealing to funds, particularly private equity funds.

With huge benefits such as: low cost for operation service, highly protection on data, greater operational flexibility, British Virgin Islands investment funds offer a number of advantages for fund investors and help to bring broader selection of investment opportunities. For further counsel for BVI investment funds as well as other offshore jurisdictions, check out our professional services here.