The British Virgin Islands (BVI) is an attractive jurisdiction for offshore hedge funds. The legislative structure in the BVI is modern and internationally recognized. The authorities have successfully created a framework that is rigorous in terms of anti-money laundering and know-your-customer requirements.
It is considerably less expensive to establish an offshore hedge fund in the BVI than comparable jurisdictions such as the Cayman Islands. Hedge funds domiciled in the BVI would benefit from the availability of higher quality banking and custody services in the jurisdiction.
Typically the BVI requires all investment funds falling within its definition of “mutual fund” to be registered with the BVI Commission. The Commission further requires all managers and administrators of mutual funds to be licensed if the manager or administrator is incorporated in or carries on its business from the British Virgin Islands. Due diligence and proof of experience is key to obtain approval from the BVI Commission.
HOWEVER, in the early stages of an offshore hedge fund where the fund manager may not be able to satisfy the Commission’s requirements, the fund sponsors may consider structuring their company as a “closed-end” fund. A closed end company/fund is simply a company that issues “x” number of shares one time. Once the shares are sold, the trading begins. This type of company/fund is not required to register with the BVI Commission. It is also important to note that the term “fund” can not be included in the company name. However, the offering documents can reference the company as a “closed-end fund” for descriptive purposes.Typically the BVI requires all investment funds falling within its definition of “mutual fund” to be registered with the BVI Commission. The Commission further requires all managers and administrators of mutual funds to be licensed if the manager or administrator is incorporated in or carries on its business from the British Virgin Islands. Due diligence and proof of experience is key to obtain approval from the BVI Commission.
HOWEVER, in the early stages of an offshore hedge fund where the fund manager may not be able to satisfy the Commission’s requirements, the fund sponsors may consider structuring their company as a “closed-end” fund. A closed end company/fund is simply a company that issues “x” number of shares one time. Once the shares are sold, the trading begins. This type of company/fund is not required to register with the BVI Commission. It is also important to note that the term “fund” can not be included in the company name. However, the offering documents can reference the company as a “closed-end fund” for descriptive purposes.