New 'Approved Manager' Regulations for Hedge Funds
Contributed by O'Neal Webster
22 February, 2013
Earlier this year, I wrote an article entitled Why you should choose the BVI for your next Fund. Since then new regulations ushering in an Approved Managers regime have been published and as of December 10, 2012 are now in force. The effect of these new regulations is to make the BVI an attractive option for setting up as an investment manager.
Under the Investment Business (Approved Managers) Regulations, 2012 a person who qualifies as an Approved Manager now has a fast-track approval process to operate as an investment manager or investment adviser for BVI funds (or certain non-BVI funds) as well as a more lightly regulated regime with which to comply.
A person who wishes to conduct business as an approved manager need only submit a complete application to the BVI regulator, the Financial Services Commission at least 7 days prior to commencing business. Provided, the applicant is otherwise eligible, then he can begin to conduct business as a BVI fund manager. The regulator will review and make a determination on the application within 30 days or less, but if necessary, has power to extend the period for making a determination by an additional 30 days.
To be eligible, the fund manager must
- have the intention of managing or advising a BVI private or professional fund (including a closed-ended fund) or a non-BVI fund that invests all or a substantial part of its assets in a BVI fund;
- meet the BVIs fit and proper requirements; and
- have total assets under management of less than $400 million for open-ended funds or US$1 billion for closed-ended funds
The Financial Services Commission must also be satisfied that the approval will not be contrary to public interest.
An approved fund manager can conduct investment management and investment advisory duties for BVI professional and private funds, BVI close-ended funds, non-BVI funds with similar characteristics to BVI professional, private or close-ended funds that invest at least a substantial part of their assets in a BVI professional, private or close-ended fund. In addition the Financial Services Commission can approve entities that do not fall into any of the above categories for management by the approved manager.
Aside from the shorter less tedious path to approval, another major benefit for the approved manager is that the manager is subject to lower regulatory requirements. As such an approved manager is not required to have a compliance officer or maintain a compliance manual. The approved manager is not required to appoint an auditor, but is required to submit annual financial statements unless it qualifies for an exemption.
These exemptions mean that a manager can operate at a relatively low cost. This is extremely useful for new and smaller fund managers. A recent report, the 2012 Hedge Fund Business Expense Survey, conducted by Citi Prime Finance, shows that managers need about $250M in assets under management to be self-sustaining. The speed and low cost of setup and lower operational costs occasioned by the approved managers regime should mean that managers with even less than $250M in assets under management can be self-sustaining if they take advantage of these new BVI regulations.
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