The new category of fund is to be called a “private investment fund” and is defined as a company, partnership, unit trust or any other body which:
- collects and pools investor funds for the purpose of collective investment and diversification of portfolio risk; and
- issues fund interests, which entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the company, partnership, unit trust or other body.
An entity which does not have the above characteristics will not be a private investment fund and will not be affected by the legislation.
The legislation will prohibit the promotion or operation of a private investment fund unless and until it has been “recognised” by the FSC (although there will be a 21-day grace period from the commencement of carrying on business for making the application for recognition, for private investment funds which are compliant in all respects except for recognition when they start business).
The FSC is able to recognise a private investment fund if it is satisfied that the following conditions are met:
- the fund is lawfully incorporated, registered, formed or organized under the laws of the BVI or of a country outside the BVI; and
- the constitutional documents of the fund specify that:
- The fund is not authorized to have more than 50 investors, or
- An invitation to subscribe for or purchase fund interests shall be made on a private basis only, or
- The fund interests shall be issued only to professional investors with a minimum initial investment (other than for exempted investors) as may be prescribed in the Regulations (currently US$100,000); and
- the fund meets such criteria as may be specified in the Regulations; and
- on recognition, the fund will be compliant with the legislation, the Regulations, and any practice directions applicable to the fund; and
- recognising the fund is not against the public interest.
A private investment fund will be obliged to operate in accordance with any restrictions on numbers or type of investors, or on the offering of interests, set out in its constitutional documents, and to maintain financial records.
The legislation sets out penalties for any person operating or promoting, or acting as administrator, custodian or manager for a private investment fund which has not been recognised.
There is a transitional period to 1 July 2020 during which existing closed-ended funds can make themselves compliant.
The legislation also includes a new provision requiring persons undertaking management functions for new fund entities (including mutual funds as well as private investment funds) to provide notifications to the FSC. This provision will come into force on 1 July 2020.
The principal impact of the legislation is to prohibit private investment funds from operating unless they have filed particulars with the FSC, and received recognition from the FSC. Recognition will only be forthcoming where the fund is limited to a small group of investors, or privately placed, or limited to professional investors. Since most closed-ended funds in BVI are likely to have self-imposed restrictions on eligible investors which comply with these restrictions, the legislation itself is unlikely, in our view, to cause any significant impact upon the private funds industry and we do not anticipate that any Regulations will impose any notable change to the way in which such funds currently operate.
The legislation arises as part of wider discussions with the EU in relation to the BVI’s economic substance regime. However, it does not impose any economic substance or reporting requirements. It should be noted that carrying on business as a fund (whether a mutual fund, private investment fund or otherwise) is not of itself a “relevant activity” falling within the BVI’s economic substance regime.
Appleby supports International Women's Day 2023
Appleby is proud to support International Women’s Day (IWD) and this year’s campaign theme of #E...
Top tier rankings for Appleby in Chambers Global 2023
Twenty-eight lawyers from across Appleby’s Bermuda, British Virgin Islands (BVI), Cayman Islands, ...
Appleby provides offshore perspective on fund finance laws and regulations in 2023
Fund finance specialists from Appleby have authored the jurisdictional chapters for Bermuda, the Bri...
Appleby leads in offshore fintech
Appleby has been ranked Band 1 for the firm’s work in the fintech sector in the BVI, Guernsey and ...
For over a decade the approach which the Court should take on applications to wind up companies has ...
Appleby adds to total of top tier rankings in Legal 500 Caribbean 2023
Legal 500 Caribbean has ranked Appleby Tier 1 for nine practice areas and recognised 53 lawyers from...
Appleby leads on six jurisdictional chapters for Legal 500’s latest Mergers & Acquisitions (M&A) guide
Appleby has authored the chapters for Bermuda, the British Virgin Islands, the Cayman Islands, Guern...
BVI Business Companies (Amendment) Act, 2022; and BVI Business Companies (Amendment) Regulations, 2022
A Notice was subsequently gazetted, announcing that the Amendments will come into force on 1 January...
Over 30 Appleby lawyers and nine offices recognised in 2022 IFLR1000
36 Appleby lawyers across nine jurisdictions have been recognised in this year’s IFLR1000 rankings...
Appleby advises China Graphite Group Limited on its global offering and listing on the Main Board of the Hong Kong Stock Exchange
Appleby's Hong Kong office acted as Cayman Islands and BVI counsel.