These extremely popular and flexible funds are governed by the Securities and Investment Business (Incubator and Approved Funds) Regulations 2015, as amended (the Regulations) and the Incubator and Approved Funds Guidelines. The BVI has often been described as the "home" of the emerging manager and these two fund products further reinforce that message.
The incubator fund is aimed at start-up managers looking to establish a track record and test a strategy in the most cost- efficient manner. The approved fund is aimed at managers looking to establish a fund for a small, private and longer-term offering in a tested and respected funds jurisdiction.
In order to qualify as an incubator or approved fund, a fund must fall within the requisite thresholds regarding (i) the number of investors, (ii) the maximum value of its net assets and (iii) the minimum initial contributions by each investor (incubator funds only). An approved fund is also required to appoint an administrator to ensure suitable oversight of its operations.
The key features of incubator & approved funds
Rapid approval times by the Financial Services Commission (the Commission) ensuring that the fund can be launched within a timescale that meets the manager's requirements
Light regulation and minimal ongoing regulatory obligations
Limited mandatory information to be contained in an offering document means that the fund can operate using a short-form term sheet, keeping legal costs and time associated with set-up to a minimum
Stripped back requirements for mandatory functionaries to be appointed (other than the appointment of an administrator for an approved fund). The manager can therefore elect to only appoint functionaries they believe the fund requires from the outset
No requirement to conduct an audit or file audited financial statements
The incubator fund has a two-year validity period (with the possibility to extend this by a maximum of 12 months on application to the Commission), which gives the manager time to test their strategy and determine whether the fund is viable before committing to operate as a private, professional or approved fund
Option to convert to a private or professional fund at a later date, should the fund outgrow the applicable restrictions
Ability to commence business within two business days of lodging a complete application for approval with the Commission
Criteria for the incubator & approved funds
Number of investors: Incubator and approved funds must have no more than 20 investors. Once this limit is met, the Regulations allow a reasonable time to upgrade the fund to the next level, ensuring a smooth continuity of operation
Minimum investment: For incubator funds only, each investor must be a "sophisticated private investor", which simply means that they were invited to invest in the fund and must make a minimum initial investment of US$20,000. There is no prescribed minimum investment amount for approved funds
Total assets: The net assets of an incubator fund must not at any time exceed US$20 million. The net assets of an approved fund must not at any time exceed US$100 million
Valuation policy: The fund is required to maintain a clear and comprehensive policy for the valuation of its assets (Fund Property) with procedures that are sufficient to ensure that the valuation policy is effectively implemented. The valuation policy shall:
Be appropriate for the nature, size, complexity, structure and diversity of the fund and the Fund Property
Be consistent with the provisions concerning valuation in its constitutional documents and term sheet/offering document
Require valuations to be undertaken at least on an annual basis
Include procedures for preparing reports on the valuation of the Fund Property
Specify the mechanisms in place for disseminating valuation information and reports to investors
Minimum investor disclosures: Each investor must be provided with a written warning (either in a prominent place in the offering document or ...

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