The British Virgin Islands has established itself as a leading jurisdiction for certain kinds of investment funds. Two of the most popular investment funds available are the Incubator Fund and Approved Fund. These vehicles provide investment managers and investors with flexible and efficient ways to invest. But what’s the difference between them, what are the pros and cons of each, and which is the best decision for your needs?
The British Virgin Islands
Over the last decade, the BVI has become a top offshore jurisdiction for open-ended investment funds. This has been helped by the implementation of new frameworks such as the Incubator Fund and Approved Fund. The jurisdiction also has favourable regulations for various other funds such as Approved Fund, Private Fund, Professional Fund, or Public Fund. Updates to the legislation mean that BVI is in line with international regulatory standards and is recognized as a cooperative jurisdiction for tax matters by the EU. This, combined with a business-friendly environment, a secure and stable economic system, and a robust legal system, makes it an attractive place for managers looking to manage and raise funds.
BVI Incubator Fund
The BVI Incubator Fund is specifically designed for beginner and startup fund managers keen to establish a track record. The fund is both quick and cost-efficient to set up. After two years and a potential one-year extension, the fund is closed or converted into another BVI fund. It must also convert if it surpasses its maximum investment value for a period of two or more consecutive months.
An Incubator Fund has a minimum investment of $20,000 and a limit of total investments capped at $20 million. The total number of investors cannot exceed 20- and there’s no need for an administrator, investment manager, auditor, or custodian.
BVI Approved Fund
A BVI Approved Fund allows fund managers to operate for a longer time without the requirement to convert or close. It is essentially a step up from the Incubator Fund and is open-ended. Many Incubator Funds will convert into Approved Funds. These funds are not required to convert, although they must do so if certain limits are met.
Approved Funds are capped at $100 million with no more than 20 investors. There are no minimum investment criteria. The Fund can operate without an investment manager, auditor, or custodian, but an administrator is required.
Similarities and Differences
There are several similarities and differences between Incubator Funds and Approved Funds. Similarly, both funds are quick to set up and can take as little as four to five weeks once the paperwork has been submitted. They are both low-cost and enjoy a lighter regulatory touch than some of the more advanced fund types. Despite this, they both enjoy recognition as compliant funds that meet international best practices.
Additionally, both fund types require the manager keeps a clear policy for the valuation of the fund property. These evaluations must be undertaken annually, and the policy must be effectively implemented. Furthermore, those controlling the function of the fund’s investment must be independent of those involved in the valuation process. Any conflicts must be managed as well as being disclosed to investors.
Assets must be kept segregated, and arrangements should be in place to ensure the safekeeping of property.
- Administrative requirements: Incubator and Approved funds should have at least two directors, one of which must be a physical person. They must also have an authorized representative in BVI and a registered agent. In the case of an Approved Fund, it must have a fund administrator.
- Documents: When it comes to offering documents, neither kind of fund is required to have them. Instead, they can function with short-term sheets. Managers must, however, provide investment warnings and a summary of investment strategy.
- Reporting: An Incubator Fund should file a semi-annual report and an annual report. Approved Funds must file an annual report on an annual basis.
- Application: The application for both funds is the same. Constitutional documents, investment strategy details, the prescribed form of investor warning, and an application fee must be filed with the BVI authorities. A few weeks later, as long as there have been no queries, the fund can start functioning.
Which one is right for me?
Which one is right for you will depend on your aim and where you are in your career as a manager. If you’re looking for a simple setup fund that will build your experience and reputation, the Incubator Fund is for you. After its timeframe elapses, you can then progress it to an Approved Fund or similar. If, however, you are a bit more experienced or have bigger plans for the fund, you should start with an Approved Fund. Once you have reached your target or need something more substantial, you can consider another BVI vehicle.
Contact Fast Offshore
If you aren’t clear on which fund is right for you, it’s a good idea to chat with a corporate service provider with experience in this area. They can explain more about applying, regulations, limitations, and possibilities.
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