The BVI has seen some good traction in the Approved Manager regime since it was introduced at the end of 2012. Whilst this has proved popular with start-up and small- to mid-sized managers looking for a lighter touch regulatory oversight from the local regulator, the feeling amongst the islands’ leading law firms was that a new fund product was needed to cater more specifically to this market sector.
To address this issue, Simon Schilder (pictured), Partner at Ogier and Chairman of the Securities, Investment Business and Mutual Funds Advisory Committee (SIBAC), has written a white paper currently being considered by the FSC.
“The historic sweet spot for the BVI has always been a market that appeals to start-up managers and small- to mid-sized managers. With that in mind, we’d like the FSC to push through two new fund products to complement what we’ve already got,” says Schilder.
The first fund product – provisionally titled the “Incubator Fund” – would be aimed at start-up managers and takes the form of a regulatory-light fund platform. The proposal is that managers could use the platform for a period of up to two years.
“To be eligible, one of the criteria we’ve suggested to the Commission is that the manager has a maximum of USD20m of AuM and/or a maximum of 20 investors. If, during this two-year period, it exceeds either of these thresholds, it would be required to become recognised as either a private fund or a professional fund. That two-year window would give the manager the ability to test their strategy, build their track record and see if they can build traction with investors,” explains Schilder, adding that to keep the running costs down, there would be no mandatory service providers to such funds.
“One could choose to have service providers, but it wouldn’t be a prerequisite. Provided the manager was eligible, they would be licensed by the FSC and have fairly light regulatory obligations to adhere to; we’ve contemplated an annual return filing and any changes made to the fund would need to be communicated to the regulator. This could be a bi-annual report on the fund’s AuM, etc. The aim would be to provide just enough information for the FSC to apply regulatory oversight without burdening the manager,” adds Schilder.
The second product – the “Approved Fund” – would be aimed at friends and family-type offerings and family offices. It would be similar to a private fund but with automatic exemptions, the most important of which being an exemption from the requirement to undertake an annual audit.
“My expectation would be that for most start-up managers without the benefit of significant seed capital, the opportunity to utilise the Incubator Fund would represent a very attractive proposition for structuring their funds during the first two years, given the ability to make significant cost savings on set-up and operational costs during this period. The Approved Fund product would be aimed more at family offices and managers managing friends and family money only”.
“This is something that the FSC is looking at closely. They understand the need to move quickly on this. Hopefully, it’s something that will be introduced to the market before the summer,” concludes Schilder.
