BVI Incubator And Approved Funds

British Virgin Islands ("BVI") Incubator Funds and Approved Funds provide innovative and low-cost vehicles for emerging managers and start-up funds to build a track record and launch funds under less stringent regulatory conditions.

Introduced in 2015 pursuant to the Securities and Investment Business (Incubator and Approved Funds) Regulations, Incubator Funds and Approved Funds provide the opportunity for emerging managers to gain enough traction in the market, while keeping overheads to a minimum, so that sufficient capital can be attracted to become viable over the long term. Both vehicles are restricted to having no more than 20 investors and while Incubator Funds have a cap for their net assets at US$20 million, with a minimum subscription of US$20,000, Approved Funds have no minimum investment and can hold a maximum of US$100 million in assets.

Incubator Funds and Approved Funds are regulatory-light offshore hedge fund vehicles that can be established very quickly and are inexpensive to set up and operate. They are regulated by the BVI Financial Services Commission (the "BVI FSC") but are subject to only moderate levels of regulation (befitting smaller and start-up funds).

Unsurprisingly, both products have proven highly attractive to new managers looking to launch in a domicile with a strong international reputation, but on a more cost-effective basis than is available in other leading fund jurisdictions. According to the BVI FSC, as of June 2025, there were 181 Incubator Funds and 415 Approved Funds on the register.

Advantages of BVI Investment Funds

Funds in the BVI may be incorporated as business companies (corporations) or segregated portfolio companies (SPCs) or formed as limited partnerships or unit trusts.

There are a number of advantages to incorporating an investment fund in the BVI including:

• High-levels of corporate governance and flexible and founder-friendly company and limited partnership laws.

• Speed and cost efficiencies.

• Simple and business-friendly regulation, with sound but commercially sensible levels of regulatory oversight and ongoing compliance requirements.

• Tax neutrality.

• Common law system with a robust commercial court (and with ultimate right of appeal to the Privy Council in the UK).

• Widely recognised and respected globally as a robust and secure jurisdiction, and highly-regarded among professional and institutional investors.

In addition, with an SPC structure, any asset linked to a particular portfolio held as a separate fund for that segregated portfolio, will not form part of the general assets of the SPC and will not be available to meet the liabilities of any other segregated portfolio. Once established, a segregated portfolio company constitutes a single legal entity; each segregated portfolio does not. The SPC can issue shares and declare dividends on its own account, as well as with respect to each individual segregated portfolio. As such, the SPC is a particularly useful vehicle for multi-class funds which wish to offer different investment strategies to investors under a single "umbrella" fund structure.

Reduced Regulatory Challenges

BVI Incubator Funds and Approved Funds are subject to sound but commercially sensible levels of regulatory oversight and ongoing compliance requirements. Of particular benefit to a new manager is that Incubator Funds and Approved Funds are not required to prepare a comprehensive offering memorandum. Instead, investors just need to be provided with a written description of both the investment strategy and an outline of the risks involved, including the specific risk of investing in these types of funds, and policies regarding valuation and safekeeping of fund assets.

Additionally, there is no need for either type of fund to appoint an auditor or custodian. With its higher limit on net assets, the Approved Fund has been a popular alternative for funds looking to raise capital from a limited number of investors, such as friends and family, although unlike the start-up friendly Incubator Fund, an Approved Fund is required to appoint a professional third-party fund administrator.

It is also important to note that an Incubator Fund can only exist as such for a limited period of 2 years, which can be extended by 1 year upon application to the BVI FSC, before which it must either apply to the BVI FSC to convert (upgrade) to a Private, Professional or Approved Fund. Alternatively, it can convert to a closed-end fund or be wound-up. There is no such term limit for Approved Funds, which can continue to operate on an evergreen basis and apply to the BVI FSC to convert (upgrade) to a Private or Professional Fund at any time (or not).

Other Common Requirements

In addition to the above, Incubator Funds and Approved Funds must:

• For a corporation: have at least 2 directors, one of whom must be an individual. Ultimately, there must be at least 2 individual control persons (directly or indirectly) ("four eyes principle"). Local BVI-based directors are not mandatory.

• For a limited partnership: have at least one general partner (which could be either a BVI entity or a foreign entity), which must be controlled (directly or indirectly) by at least 2 individuals ("four eyes principle").

• Have an MLRO (Money Laundering Reporting Officer) as well as an AML/CFT compliance manual.

• Have a BVI Registered Agent/Office and Authorised Representative (services which Conyers can provide for its clients).

• Submit annual statistical and compliance returns by 31 January each year (as well as additional semi-annual statistical returns by 31 July each year, for Incubator Funds) as well annual financial statements (balance sheet only) within 6 months of each fiscal year end, although these need not be audited.

• Submit annual FATCA/CRS reports (if required) by 31 May each year.

• Report to the BVI FSC any changes to the information submitted pursuant to its initial application, within 14 days of the change.

• Promptly report to the BVI FSC any matter in relation to it or the conduct of its business which has or is likely to have a material impact or a significant regulatory impact with respect to it or its business.

• In the event an Incubator or Approved Fund exceeds the threshold on net assets or number of investors as set out above over 2 consecutive months, notify the BVI FSC within 7 days, and (i) submit an application to convert (upgrade) into a Private or Professional Fund or an Approved Fund, (ii) convert the fund into a closed-end fund or (iii) wind-down and close the fund.

Economic Substance Requirements

Carrying on business as an Incubator or Approved Fund is not, of itself, a "relevant activity" under the BVI Economic Substance (Companies and Limited Partnerships) Act (the "BVI Economic Substance Act"). Accordingly, unless an Incubator or Approved Fund carries on some other category of "relevant activity" under the BVI Economic Substance Act (which would be uncommon in practice), it would not be subject to any substantive economic substance requirements in the BVI (for example, it should not be required to have a commercial office or any local directors or employees on the ground in the BVI). As a result, most Incubator and Approved Funds may be operated entirely remotely from outside the BVI (subject to having a BVI Registered Agent/Office and Authorised Representative, services which Conyers can provide for its clients).

FATCA/CRS

A BVI Incubator or Approved Fund should take into consideration the applicable registration and filing requirements under FATCA and CRS. For further details, please refer to our firm's publications titled Impact of FATCA on BVI Entities and The British Virgin Islands and the Common Reporting Standard Issued by the Organisation for Economic Co-Operation and Development.

FSC Licensing Fees

The current fees payable to the BVI FSC are cost-competitive and comprise:

" Upfront application fee (including year 1 licensing fee) of US$1,800.

" Annual licensing fee of US$1,200 p.a.

Timeframe

Speed to market is a key advantage of both Incubator Funds and Approved Funds – they may commence business within 2 business days of submitting a completed application to the BVI FSC.

We are here to help

If you are looking to set-up an investment fund in the British Virgin Islands but are unsure what funds are right for your investment objective, Conyers' interactive Fund Navigator E-Tool can help guide you through the various options.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.