A professional fund is the most popular type of open-ended investment fund in the British Virgin Islands (BVI), which may carry on business for up to 21 days prior to obtaining recognition by the BVI Financial Services Commission (FSC), provided the fund lodges an application for recognition with the FSC within 14 days of launch.
The FSC may recognise a mutual fund as a professional fund if it satisfies the following qualifying criteria:
Senior Associate
Loeb Smith Attorneys
Cayman Islands
• Minimum initial investment of USD100,000 or equivalent in another currency. However, this limit does not apply to the manager, administrator, promoter, underwriter or employee of the professional fund, which are each classed as exempted investors;
• Only suitable for professional investors whose ordinary business involves, whether for the investor or other’s account, the acquisition or disposal of assets of the same kind as the fund’s property, or substantial part of the property. Eligible investors could also be those signing a declaration that they, whether individually or jointly with a spouse, have net worth exceeding USD1 million (or equivalent in any other currency) and consent to being treated as a professional investor;
• Minimum two directors, with at least one being an individual. The director does need to reside in the BVI;
• Professional fund typically has an offering document to attract professional investors, but it is not a must. Those without an offering document must provide an explanation to the FSC and issue a prescribed investment warning statement to potential investors; and
• Recognition by the FSC of a professional fund must not be against the public interest.
A professional fund must not use the term fund or mutual fund, or any derivative, in its name unless it has obtained prior written approval of the FSC and paid the requisite fee.
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Legal director
Loeb Smith Attorneys’ investment funds group
Hong Kong
In accordance with the Mutual Funds Regulations (Revised 2020), a professional fund should always have an auditor, manager, administrator and custodian appointed. A professional fund can make an application to the FSC for exemption from the requirement to appoint a custodian, manager and/or auditor, but there is no exemption for having an administrator.
An appointed custodian needs to be functionally independent from the manager and the administrator or, where this is the same person, it must have systems and controls in place to ensure that person fulfilling the custodial function is independent from the fund management or administration functions. A professional fund is also required to appoint a money laundering reporting officer and an authorised representative.
Asset valuation
BVI Regulations require a professional fund to maintain clear and comprehensive policies and procedures for the valuation of fund property. These policies and procedures are required to be submitted with the application to the FSC for recognition.
If a professional fund determines that the same person will have responsibility for both the investment function and valuation process, the professional fund is required to identify, manage and monitor any potential conflicts of interest that may arise and disclose these facts, along with measures to manage such issues to the investors.
Record keeping requirements
A professional fund is required to prepare annual audited accounts in accordance with internationally recognised and generally accepted accounting standards, and file such audited accounts with the FSC within six months of the financial year-end. This annual audit filing deadline can be extended on request for a maximum of three months.
A professional fund is also required by statute to maintain records that are sufficient to evidence and explain its transactions and enable its financial position to be determined with reasonable accuracy. Such records should be retained for five years; and failure to do so in compliance with statutory requirements will result in the professional fund being liable on summary conviction to a penalty at company level of USD20,000.
FSC enforcement powers
The FSC may take enforcement action against a professional fund if the commission considers the manager, administrator or custodian does not satisfy its fit and proper criteria, or the professional fund no longer satisfies the above-mentioned recognition requirements. If the FSC is entitled to take enforcement action, it may issue a directive that the professional fund suspends the issuance and/or redemption of interests in the fund.
Elizabeth Kenny is a senior associate at Loeb Smith Attorneys in the Cayman Islands and Wendy Au is a legal director in the firm’s investment funds group in Hong Kong
LOEB SMITH ATTORNEYS
Room 306, 3/F, Printing House
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Contact details:
Tel: +852 5225 4920
Email: elizabeth.kenny@loebsmith.com
Email: wendy.au@loebsmith.com
