BVI Mutual Funds : An Emerging Jurisdiction

Only three years after the introduction of legislation regulating mutual funds in the British Virgin Islands (“BVI”), the BVI is now widely accepted as an attractive alternative jurisdiction for the establishment, administration and management of private and professional mutual funds (including hedge funds, money market funds and equity funds), to the Cayman Islands and Bermuda.

Tax Efficient Structures
Light Regulation Low Costs
Quick Set Up Using Internationally Recognised Vehicles
Confidentiality
Professional Expertise

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over 2,000 mutual funds currently registered or recognised in the BVI representing assets in excess of US$75Billion

Mutual Fund Legislation

The broad purpose of the Mutual Fund Legislation is to create a flexible and straightforward regulatory framework for mutual funds, their managers and administrators, carrying on business in or from within the BVI, whilst providing a measured degree of protection for investors.

Only funds which permit the investor to receive, on demand, an amount proportionate to the net asset value of the entire fund are regulated in the BVI. Closed end funds that do not permit investors to exercise their right to exit the fund or cash in their investment, whenever they choose, are not regulated in the BVI.

(a) whose ordinary business involves, whether for its own account or the accounts of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property, of the fund; or

(b) who has signed a declaration that he, whether individually or jointly with his spouse, has net worth in excess of one million dollars in the United States currency or its equivalent in any other currency and that he consents to being treated as a professional investor.

Private and Professional Funds benefit from a quick (usually less than a week) recognition procedure under the BVI Legislation. In addition, Professional Funds may utilise a fast track recognition procedure, enabling them to commence business immediately, provided they obtain recognition from the Registrar of Mutual Funds within 14 days.

Popular Vehicles

The vehicle used to establish the Private or Professional Mutual Fund depends on a variety of factors, including local tax laws of investors, the familiarity of the various vehicles for marketing purposes and the cost of establishing and maintaining the particular vehicle. There are three main vehicles used for BVI Mutual Funds:

International Business Companies

• uncomplicated, quick incorporation process

• understood and accepted by international finance markets

• provide for flexible ownership structures with different classes or series of shares

• share classes may be created with preferred or deferred voting rights and dividends or other participating rights

• ability to provide for simple share redemption mechanisms

Unit Trusts

• modern trust law in the BVI

• straightforward establishment - the Trustee and Fund Manager execute a customised trust instrument with the Investors or Unit Holders being the Beneficiaries under the trust

• the trust may at any time be brought to an end on the collective vote of all the Unit Holders

• an IBC may act as Trustee which will only require a restricted trust licence provided the IBC acts as Trustee only of the trusts it lists in the application for the licence

Partnerships

• flexible nature

• formed by a General Partner and at least one Limited Partner executing Articles of Partnership and then submitting a Memorandum of Partnership to the Registrar of Partnerships

• the Articles of Partnership do not have to be filed anywhere in the BVI

• Corporate bodies may serve as the General or Limited Partner and an International Limited Partnership may serve as the General Partner of another International Limited Partnership

• no requirement to have a BVI resident General or Limited Partner

Structures

Whilst the above vehicles form the basic building blocks for the vast majority of Private and Professional Funds established in the BVI, flexible and commercially sensitive legislation in the BVI creates the ideal platform for the formation of innovative structures, customised to meet the unique needs of managers and target investors:

• Umbrella Fund - a fund which is created with more than one sub-fund below it

• Fund of Funds - a fund used to invest in other funds

• Master-Feeder Fund - a fund used to attract a specific interest group for onward investment into a central master fund

• Multi-Manager Funds - a fund that selects different managers to invest in a portfolio of assets. Normally, there is one investment adviser or manager which has contracted with the fund to allocate the fund’s assets between selected managers, after studying their recent investment performance and techniques

• Side By Side Fund - normally an onshore and offshore fund utilizing the same investment strategy, but each fund is attractive or useful to a different category or class of person. For example a promoter or fund manager may wish to start up an offshore fund, following the success of its onshore fund, utilizing precisely the same investment strategy, but the offshore fund may be limited to non-US persons, owing to regulatory and or taxation issues which would otherwise arise.

Management and Administration

Although there are currently 400 entities providing management and/or administration services to Mutual Funds in the BVI, Mutual Funds do not have to be managed or administered from within the BVI. Regulated service providers in 18 jurisdictions around the world are accepted by the BVI Registrar of Mutual Funds to provide management and administrative services to BVI Funds, allowing greater flexibility when appointing service providers. Similarly a non-BVI Mutual Fund is not required to be regulated under the Mutual Funds Act only because it is managed or administered from within the BVI, provided that the management or administrative service provider is a BVI entity, licensed under the Mutual Funds Act.

Checklist In Appointing BVI Professional Service Providers

• advise on all aspects of establishing, administering and managing private and professional funds from the BVI

• review or draft prospectuses and other offering memoranda

• prepare custom mutual fund constitutional documents or unit trust deeds

• arrange for the establishment of the mutual fund as a company, trust or international limited partnership

• arrange for the provision of a trustee if the fund is structured as a unit trust

• prepare and lodge documents with the BVI Registrar for recognition

• going forward - provide comprehensive management and administration services