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BVI Fund Products for Start-ups and Emerging Investment Managers
 
In June 2015, The BVI issued the Securities and Investment Business regulations that introduced the two new fund regimes, the BVI incubator and approved funds. Both funds mainly focus on two types of managers:

• Start-up managers that are looking to establish a track record
• Small/medium size funds with friends and family money

These two fund regimes offer cost effective and lightly regulated fund solutions,that offer the option to convert the fund to more established fund types.
 
Incubator fund

The incubator fund is designed for managers who are looking to start an investment strategy on a trial basis with sophisticated investors. If the strategy succeeds within the prescribed timescale, the regulations provide a seamless route for the fund to be recognized or approved as a private professional or approved fund, depending on the manager's future plans for growth. If the strategy does not succeed, the regime will allow an incubator fund to close down or convert to an ordinary company.
 
The key features of incubator funds include:

1. Only suitable for "sophisticated private investors", which are defined in the regulations as "a person who has been invited to invest in an incubator fund and the amount of his or her initial investment is not less than US$20,000."
2. The total number of investors is limited to 20
3. Net assets of the fund must not exceed US$20,000,000 or its equivalent in any other currency
4. No audit is required
5. Can only be approved for a two year period. It is possible to seek an extension from the Commission for an additional 12 month period. Prior to the end of this period it will be necessary to make an application to the Commission for the fund to be recognized as either a private fund or a professional fund or to be approved as an approved fund
6. Offering document/prospectus is not mandatory and if no offering document is prepared, the regulatory environment is that investors must each be given a written investment warning
7. Audit of financial statements is not mandatory
8. No manager, administrator or custodian is required

Approved fund
 
The approved fund is designed for smaller strategies such as friends and family funds, with a higher net asset value threshold and no limit to the length of time if qualified as an approved fund. It also differs from the incubator fund in requiring an administrator.
 
Main criteria include:

1. The total number of investors is limited to 20
2. Net assets of the fund must not exceed US$100,000,000 or its equivalent in any other currency
3. Offering document/prospectus not mandatory and if no offering document is prepared, the regulatory environment is that investors must each be given a written investment warning
4. On-going regulatory obligations limited to notification of changes within 14 days
5. Audit of financial statements is not mandatory
6. The approved fund must have an administrator, but it is not required to have a manager or custodian

Option to convert

The incubator fund is required to convert in the following events:

• comes to the end of its incubation period, 24 months or 36 months (if extended), or
• has more than 20 investors, or
• its assets exceed US$ 20 million for any consecutive period of 2 months or more

In the above situation, an incubator fund may convert to a private fund, a professional fund or an approved fund.
The approved fund is required to convert when it:

• has more than 20 investors or
• its assets exceed US$100m for any consecutive period of 2 months or more

In this case, the fund may convert to a private fund or a professional fund.

For more information, please feel free to contact us.