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Offshore Mutual Funds
I. Introduction
V(a). Formation of a Mutual Fund
There are a series of tasks associated with the formation of an
offshore mutual fund in the BVI, which include: a) Preparation of
the investment plan, b) deciding on the structure of the mutual fund,
c) drafting of the prospectus, d) drafting of the mutual fund charter,
e) drafting of agreements with professionals, f) appointment of
bankers, custodian and auditors, g) formation of fund equity, h)
regulatory filings and approvals, and i) distribution and marketing of
the prospectus.
V(b). Preparation of Investment Plan
The first task in the formation of a mutual fund is for the
sponsor to prepare an investment plan. This plan should lay out
the fund's overall investment strategy, indicating the type and area
of investments, and the type of instruments. The plan should also
specify any specific investment policies or restrictions, such as
short selling, margin trading and hedging. The sponsor should also
define the target investor market and methods of marketing and
distribution.
V(c). Deciding on Structure of Mutual Fund
In conjunction with
Hewlett Beck & Arad, the fund sponsor will need to decide
upon the type of entity through which the fund will operate and the
nature of the interests that investors will purchase. This involves
defining the share classes, the minimum investment and the redemption
and offer rights of shareholders. Factors to be considered include
marketability, taxation, securities regulation and matters of
corporate law.
V(d). Drafting of Prospectus
Once the above variables have been determined, work can start on
drafting the prospectus. The purpose of the prospectus is to define
what investors may expect from their investment. In order to protect
investors, full disclosure is required, particularly as to risk
factors. Such disclosure also protects the sponsor and investment
manager in the event that less than favourable fund results are
achieved. Hewlett Beck
& Arad will draft the prospectus, or will
review a prospectus prepared by the client or their legal advisor.
Such review is intended to ensure compliance with BVI law, adequate
disclosure and consistency with the fund's charter.
V(e). Drafting of Mutual Fund Charter
The Memorandum and Articles of Association of an IBC, Memorandum
and Articles of Limited Partnership or Unit Trust Deed, as the case
may be, will constitute the charter of the fund. As well as being
the documents necessary for formation of the legal entity, these
complex documents define the rights and obligations of management
and investors in respect of the fund entity. In addition, they set
forth the procedures for subscription and redemption of investor
interests, and determination of Net Asset Value. Based upon the
prospectus and consultation with the client,
Hewlett Beck & Arad
will draft the relevant documents to ensure consistency and compliance
with applicable law.
V(f). Drafting of Agreements with Professionals
The fund will need to determine the precise responsibilities of
the Investment Manager and Administrator, as well as their
remuneration. It must be decided who will maintain what records,
prepare accounts and NAV certificates, deal with the issuance and
redemption of shares and investor relations generally. These matters
need to be incorporated into contracts between the fund and the
various parties. Hewlett
Beck & Arad can provide forms for the
various documents and negotiate terms with the respective legal
advisors. Where Elan is to act as administrator, clients may wish
to arrange for an independent review of the Administration Agreement.
V(g). Appointment of Bankers, Custodian and Auditors
Elan can introduce fund sponsors to banks and auditors in the
BVI, if requested. Although neither custodian nor auditors are
legally required for private or professional funds, they are
strongly recommended to enhance investor confidence. Consideration
of these appointments should be made at an early stage, to permit
time for appropriate due diligence and agreement of terms on both
sides.
V(h). Formation of Fund Entity
Once the fund charter has been finalised and the prospectus is
in near final form, the fund entity can be legally established.
Due to the efficiency of the BVI Companies Registry, this can be
achieved in a day (although it will take a few days to receive back
duly certified documents for distribution). Elan, as a licensed
registered agent, will deal with all aspects of formation and
organisation of the fund entity.
V(i). Regulatory Filings and Approvals
At this state all regulatory filings whether in the BVI or
elsewhere should be made. Apart from a professional fund, no BVI
mutual fund can carry on any activities without being registered or
recognised. For public funds, it is possible to obtain a
pre-registration consent from the Registrar of Mutual Funds in order
to speed the process. A professional fund can apply for recognition
within 14 days after commencing its activities (the Registrar has
indicated that applications for recognition of professional funds
will be processed within 24 hours after receipt of complete
applications.)
V(j). Advantages of Using Hewlett Beck & Arad and Elan Corporate Services Ltd.:
The creation of a mutual fund can be a complex process involving
a host of issues and numerous parties. Our aim is to streamline
and simplify the process for the busy investment professional.
Hewlett Beck & Arad
and Elan combine the skills and experience necessary to
guide you through all aspects of fund establishment and
administration. Once an investment professional has determined a
clear investment strategy and target investor market, the two firms
will undertake and coordinate all necessary steps to put the fund
into business. The services provided by
Hewlett Beck & Arad
and Elan include:
I. Introduction
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© Elan Corporate Services Ltd., MCMXCVI-MMIV. All rights reserved.
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Telephone: +1 (284) 494.4590 / Telecopier: +1 (284) 494.2838 / E-mail: elan@elanbvi.com
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