| 
|
|
British Virgin Islands Mutual Funds FAQ
I. Introduction
How long does it take to form a Mutual Fund in the BVI?
This depends on a number of factors. Assuming the Promoter of the
fund has a clear investment strategy, target investor market, the largest
time factor is the drafting of the prospectus. Taking into account
various revisions and drafts this could take a month to six weeks.
Obviously if the client has a prospectus that has been used previously,
particularly in the BVI, then it will simply need to be reviewed by BVI
counsel and the proposed administrator, custodian and so on which could
be done within one or two weeks.
While this is going on, arrangements can be made with the various
professionals involved (manager, administrator, banker, auditors,
custodian) but they will all wish to see at least a first draft prospectus
and references and other information regarding the promoter in order to
conduct their due diligence as required by the Code of Conduct. Unless
the bank is also acting as custodian or administrator, or has a
pre-existing relationship with the client, it can take a couple of
weeks to open the bank account.
Preparation of the Mem & Arts or other formation documents should
not start until the prospectus is in near final form and then can be
completed within a week or so. Formation of the entity can be done
in a day once all of the documents are ready.
Recognition of a Private or Professional fund with the Registrar of
Mutual Funds can also be achieved in a day following receipt of a
completed application. A professional fund can be legally recognized
up to 14 days after commencing operations.
Therefore, a typical fund
can be established within six weeks to two months. A second or more
fund based on a previous model can be established within two to three
weeks. If the fund is a public fund, then the process will take longer,
partly because of the somewhat higher level of due diligence. We do not
yet know how long the Registrar will take to process an application for
registration. However, there is a pre-registration procedure to help
keep the process moving.
How much does it cost to form a fund in the BVI? Costs obviously vary according to the complexity of the proposed
fund structure and so on. Again the biggest cost factor is the drafting
of the prospectus. If this is required, the costs should be in the range
of $15,000 to $20,000.
What are the annual running costs of the Fund?
The government fees payable vary according to the size and nature of
the fund. A public fund, with an authorized share capital of more than
$50,000 will incur annual company licence fees of $1,000 and Mutual Fund
registration fees of $500. For a company with a smaller share capital
the fee is $300 per annum and for a private or professional fund the fee is
$350 per annum. The other principal running costs (management,
administration and custody) will generally be based on a percentage of
NAV (subject to certain agreed minimum fees) and therefore, their impact
upon overall performance is predictable.
Are there any limits on the fees that promoters and managers can
charge?
Not at present. These are a function of what is competitive in the
market place, provided they are all set out clearly in advance.
Does the Mutual Fund have to be administered or operated in the BVI?
No. A BVI fund can be administered or managed anywhere in the world.
However, there must be a registered office and registered agent in the
BVI and public funds must have accounting records available for inspection
in the BVI.
What is the purpose of having different classes of share capital?
There are a number of legal and marketing reasons why funds typically
have more than one class of capital. Under BVI legislation, there is
practically no limit to the number of classes of shares that can be
created, the currencies or denominations in which shares can be created
and the different rights which attach to the different share classes.
There are three principal reasons for creating different classes of
shares: a) To distinguish management from investors. Management shares,
which control the appointment of the directors and therefor the overall
policy of the fund, the selection of professional advisors and so on,
will have voting rights but generally no participation in the equity or
any dividends, distributions or redemptions of the fund. Investors shares
will carry all of the economic benefits but only limited rights to vote,
where for example, there is a proposal to change their share rights or to
change control of the fund; b) To distinguish between different asset
classes in which the fund invests. E.g. different currencies, bonds as
opposed to equities, geographical areas and so on. This enables investors
to have a certain choice as to their portfolio mix and usually, to change
the mix under certain conditions; c) To distinguish between different
investors. Where investors are given full discretion as to their
portfolio mix, so that each investor will have a different performance,
it is necessary to separately identify the portfolio and results of each
investor. This is typically done in cases where the purpose of the fund
is to facilitate the investment by individuals in a series or menu of
other funds, in which the fund invests on a pooled basis, where the
individuals could not do so themselves.
How does the regulatory scheme work?
The purpose of the regulatory scheme is to ensure that only fit and
proper persons are involved in the BVI mutual funds industry. Therefore
the focus is on due diligence on the promoters and the various
professionals involved. Obviously with respect to public funds there
are also additional specific requirements for investor protection, such
as mandatory audit and prospectus. However, generally, the Registrar's
office will not involve itself, in the internal operation or marketing
of a fund. Furthermore, the Act lays down what is described as a
differentiated scheme. That is to say it recognizes different levels
of regulation for different circumstances.
With respect to the licensing of fund administrators and managers, at
the highest level, namely an unrestricted license for entities physically
operating in the BVI, where the BVI is the prime regulator, The
Registrar, goes further and does examine the detailed structure,
resources, expertise and operations of the applicant. At the moment
there are no rules as to how day to day operations should be conducted
but a Code of Conduct is anticipated. Generally, the Registrar has shown
that they are prepared to strike a balance between the need for effective
regulation and the desire to avoid burdensome regulation, which could have
an adverse effect on the industry. However, of paramount importance is
the Government's desire to maintain the integrity of the industry in the
Territory and ultimately, to gain worldwide recognition of the standards
of regulation in the Territory.
Can BVI Mutual fund shares be offered anywhere in the world?
So far as the BVI is concerned, the answer is yes. However, advice
will need to be sought as to the securities laws of each jurisdiction in
which the shres are to be offered as to the legal requirements for
offering securtites for sale to residents of those jurisdictions.
What about Internet marketing?
Internet marketing will generally be considered as an offer to the
public, unless it is clear that for example the offer can only be
accepted by professional investors. Furthermore, whether or not a web
page constitutes an offer of securities in a particular jurisdiction,
which is a very complex issue, many jurisdictions will have securities
laws based upon where shares are sold. Unless the investor is physically
out of the jurisdiction when the sale is consummated, it may be that the
jurisdiction will seek to enforce its laws, in cases of sales to its
residents, resulting from Internet marketing. This is a very live issue
and careful consideration must be given in every case.
I. Introduction
|
© Elan Corporate Services Ltd., MCMXCVI-MMIV. All rights reserved.
Corporate Address: Palm Chambers / P.O. Box 119 / Road Town, Tortola, B.V.I.
Telephone: +1 (284) 494.4590 / Telecopier: +1 (284) 494.2838 / E-mail: elan@elanbvi.com
Please report any problems to: postmaster@elanbvi.com