The British Virgin Islands (BVI) is one of the leading jurisdictions for investment purposes and the second destination at a global level for offshore hedge funds. The legislation under which hedge funds can be set up in this country is given by the Securities and Investment Business Act 2010. Investors interested in setting up a hedge fund startup in the British Virgin Islands should know that this type of vehicle can be registered as open-ended or closed-ended, each category being regulated by a different set of rules.
| Quick Facts | |
|---|---|
| Applicable legislation | 2010 Securities and Investment Business Act. |
| Available registration forms | – company limited by shares, – limited partnership, – unit trust, – segregated portfolio company. |
| Types of fund structures | Private, professional, public, approved, and incubator funds. |
| Features of private funds | Private funds do not require a minimum capital and can have no more than 50 investors invited to subscribe privately. |
| Characteristics of professional funds | Professional funds address professional investors who must subscrie at least USD 100,000. |
| Requirements to register public funds | Public funds have no restrictions on the number of investors and their subscription and require a prospectus for authorization. |
| Registration conditions for approved funds | Approved fund cannot have more than 20 investors and net assets that exceed USD 100 million. |
| Characteristics of incubator funds | Incubator funds cannot have more than 20 investors who must invest at least USD 20,000. The net assets of the fund cannot exceed USD 20 million. |
| Types of investors addressed | Professional and non-professional investors. |
| Assets that can be managed by a BVI hedge fund | – real estate, – equities, – bonds, – derrivatives, – private capital, – currencies. |
| Registration steps | – documents preparation and filing, – authorization (unless exempt). |
| Documents | – business form setup document, – information about the manager(s), – the prospectus (when required), – details of the local agent (if required). |
| Licensing authority | Financial Services Commissions of the BVI. |
| Registration timeframe (approx.) | 3 to 8 weeks, depending on the type of fund. |
| Advantages | – quick registration procedure, – variety of fund types, – possibilty to appoint functionaries from countries recognized by the BVI Financial Services Commission. |
Hedge funds – popular vehicles in the BVI
The legislation on hedge funds in the BVI provides numerous tax advantages. Moreover, investors can benefit from flexible investment policies, as the legal framework does not impose any regulations on this matter.
At the moment, hedge funds set up in the BVI are some of the main investment tools preferred by foreign investors, as the local market accounts for approximately one quarter of the offshore hedge funds registered at a global level.
More importantly, investors interested in how to start a fund in the BVI should know that they are not required to appoint local directors and other local representatives, such as auditors.
Types of hedge funds in BVI
As mentioned at the beginning of the article, the hedge funds that can be set up in the British Virgin Islands can be categorized as open-ended or closed-ended vehicles. Most of the hedge funds registered here are incorporated as open-ended structures and they fall under the regulations of the Financial Services Commission.
Open-ended hedge funds in the BVI can be incorporated as one of the following:
The main type of vehicles that are set up as open-ended hedge funds are registered as professional funds. Those who want to know how to start an investment fund registered as a professional vehicle should take into consideration that there are specific incorporation requirements that have to be met for this type of fund, including for the initial investment, which in this case, is set up at $100,000.
Here is also an inforgraphic on BVI hedge funds:
Legal entities under which BVI hedge funds can be registered
Hedge funds can take various forms, however, some of the most popular options in the British Virgin Islands are:
- the limited partnership created in accordance with the Limited Partnership Act, created by the investors and where the fund is a separate legal entity from its creators, granting the latter protection against liabilities incurred by the fund;
- the unit trust that are created through a trust deed but, are not distinct legal forms from the investors; even so, they have certain advantages, among the possibility of being used for issuing private equity;
- the Segregated Portfolio Company (SPC) or BVI Business Company, which is governed by the law with the same name of 2018 and which is a single unit operating as a protected cell or segregated account and through which the fund can divide its assets and liabilities in sub-funds or segregated portfolios.
Segregated Portfolio Companies are also used in other insular states, for example, the SPC in the Cayman Islands is quite popular for the creation of hedge funds, just like in the BVI.
If you are interested in other destinations where this type of entity is used, our magazine has interesting articles on how to start an investment fund in countries around the world.
Documents required to open a hedge fund in the BVI
One of the main steps in setting up any type of fund in the BVI is drafting the necessary documentation. Here is the paperwork to consider for starting a hedge fund here:
- the creation document/trust deed/memorandum and articles of association, depending on the structure of the fund;
- a letter through which a local agent is appointed (starting a hedge fund in the BVI requires using a local representative when established by foreign investors).
Furthermore, depending on the structure employed, specific details must be provided to the British Virgin Islands Financial Services Commission(FSC). Among them:
- details about partners (names, addresses), the duration of the partnership, in the case of this business form;
- the constitutive documents, the directors’ registry, and the certificate of incorporation in the case of the SPC;
- the trust deed and details about the investors in the case of a trust unit.
Another important aspect to consider is filing the necessary documents about the investment management company or investment manager in case they are not BVI residents.
Requirements to set up an incubator fund in the BVI
Investors who want to know how to start an investment fund and decide on the British Virgin Islands must know that it can take the form of an incubator fund. For this purpose, it must meet specific conditions.
Here are the requirements for starting a hedge fund this way:
- it must have a maximum of 20 investors;
- each participant must invest at least USD 20,000;
- the value of the net assets of the fund must be of maximum USD 20 million.
These requirements must be maintained for at least 2 years, which represents the incubation period of the BVI hedge fund. This period can be extended up to 12 months, with the permission of the Commission. Following this time, it can be converted into a professional, private, or approved fund.
Approved funds in the BVI
Approved funds are created to make private offerings to small groups of investors on a long-term. Some of its characteristics are similar to the incubator fund, specifically, this one having no more than 20 participants. However, they are not subject to a minimum investment amount. The assets of this type of BVI hedge fund cannot have a value of more than USD 100 million at any time during its existence.
The main advantages of an approved fund are:
- there is no need to appoint an auditor;
- it is not required to have a custodian, unless it is registered as an SPC;
- it benefits from a fast-track authorization procedure.
Our articles also present detailed information on starting hedge funds in other countries, if you are looking for your next investment destination.
Private funds in the British Virgin Islands
Setting up a hedge fund in the BVI can also take the form of a private fund. The main advantage of this type of vehicle is that there is no minimum investment amount for participants, which makes it perfect for a hedge fund startup. With respect to the number of investors, there are two options:
- it can have a maximum of 50 investors;
- it can have more than 50 participants, only if the managers make private invitations to subscribe to the fund.
Such a fund is subject to recognition by the Financial Services Commission based on a prospectus.
BVI professional funds
This type of fund is the most popular option when starting a hedge fund in the BVI, as they make up around 65% of regulated vehicles here. Such entities address professional investors who must participate with a minimum initial amount of USD 100,000.
Professional funds can also address exempt investors who can be a manager, promoter, administrator, underwriter, or even an employee of the fund.
How many investment funds operate in the BVI?
According to the latest data gathered by the FSC, in the 3rd quarter of 2023:
- the Commission gave its approval for the registration of 49 new funds;
- the FSC also approved the registration of 53 new investment managers;
- in September 2023, there were a total of 1,978 investment funds and 782 managers operating in the BVI.
Foreign businessmen can contact our team of affiliates in the British Virgin Islands for in-depth advice on the registration of an open-ended hedge fund. Our partners can also advise on the regulations referring to the closed-ended hedge funds available in BVI.