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ATU GENERAL TRUST (BVI) LIMITED
British Virgin Islands
BVI Mutual Funds
This page gives you an overview of the most common forms of a mutual fund and outlines the services offered in this popular area by ATU General Trust (BVI) Limited
Introductory Remarks
Through their operation in the British Virgin Islands the VP Bank and ATU Group of Liechtenstein offer comprehensive services in establishing and administering mutual funds. In a short time they have become one of the leaders in the BVI Mutual Fund business. This is reflected by their being the first, who have passed the scrutiny of the BVI Government, to receive a licence as Manager and Administrator of BVI Mutual Funds according to the new Mutual Funds Act.
The principal purpose and advantage of a mutual fund is to provide its investors with a selection of investment options, by allowing groups of investors to pool their assets. This can allow the investors access to the services of professional investment advisors and facilitate the reduction of risk (and reduction in dealing costs) of their individual portfolios by participating in a larger range of investments than might individually be possible. This can achieve investment diversification.
The world-wide growth in the popularity of mutual funds continues unabated. In the offshore world, the popularity of the British Virgin Islands ("BVI") as an offshore centre for all types of financial structures continues to increase. In a survey conducted at the start of 1997, it was calculated that there were approximately US$ 534 billion of funds under management in offshore mutual funds. In this survey in a ranking of offshore jurisdictions for these offshore mutual funds the BVI was ranked third, behind Luxembourg and Cayman. In keeping with this position, the BVI has now passed legislation governing the formation and management of mutual funds from within the Territory. The BVI Mutual Funds Act 1996 came into force on 2 January 1998.
It is recommended that independent legal and professional advice be sought by the client before establishing a mutual fund. We are always ready to work together with third party professionals both in the BVI and in other jurisdictions in such matters.
Types and Structures of Funds
Classification of different types of funds
Mutual funds can conveniently be divided into two main types:
Open-ended Funds and
Closed-ended Funds.
An open-ended fund (the most popular variety) can issue new shares on demand to investors wishing to buy it. Therefore new subscriptions are limited only by the authorised capital of the fund, and by the availability of willing investors. By comparison a closed-ended fund is one where the sale of shares is limited either by number or time and thereafter the issue of new shares can only be made to existing shareholders by way of rights issues.
Mutual funds may be organised either under a contractual form as a partnership or as a unit trust (common in the UK for example) or under the corporate form, as an investment fund company (popular in the US, Europe and elsewhere).
Within this framework, there are various different forms of funds that are designed to cater to different types of investors. The most straightforward type is an investment fund company which simply has one class of share capital that is offered to investors and one basic cost structure that is the same for all investors. Alternatively the mutual fund may be formed with one class of ordinary voting non-participating shares (for the promoter) and one class of redeemable preference non-voting participating shares (for the investors).
Umbrella Fund
A common and cost effective type of mutual fund is the Umbrella Fund. A fund promoter can under an Umbrella Fund set up a series of sub-funds, differentiated from each other usually in that they invest in different market sectors, have different risk profiles or different currency denominated shares (e.g. USD, DEM, GBP, JPY) or invest in different types of investment. They usually have similar names, sharing a key word in their titles to create name recognition. A significant investor advantage that the larger of the Umbrella (or ‘family’) Funds have is the relatively easy and inexpensive switching facilities offered by such structures, whereby investors may for a nominal fee change the constitution of their overall portfolio between the different sub-funds within the umbrella. This gives the investor the opportunity to cheaply and easily move between different markets or risk profiles depending on their perceptions of the various performances. This switching feature can be a useful marketing tool and offers potentially a real investment advantage to the private investor.
The most common Internal Structures
The most common scenario for the offshore fund is for the fund’s promoter to act as either the Investment Manager or as the Investment Advisor, as this reduces costs whilst maintaining regulatory compliance, whilst a number of other functions are generally contracted out to other parties. Usually, the parties involved are as follows:
Investment Manager
To maintain a distance between the promoter, who may also act as the investment advisor, and the fund itself, an investment management company is often set up. This enables, for example, the promoter to hold the voting shares of the mutual fund company through a wholly owned management company, and thereby retain control of the fund. This investment management company can be an International Business Company (IBC), and any management fees paid to it from the fund may be accumulated tax-free in the BVI (although tax implications in the promoter’s domestic domicile should be discussed with a local professional advisor).
Custodian Bank
The primary function of the Custodian, which is usually an established bank, is to safeguard the fund’s assets (i.e. the investment portfolio). The Custodian Bank executes securities transactions on the instructions of the Investment Manager, collects income and dividends on behalf of the fund, and provides the portfolio statements and schedule of investments to the Administrator for the purposes of calculating the fund’s Net Asset Value (NAV).
In some cases and depending on the fund’s objective the Custodian Bank function may be split between various parties.
Through our affiliation with VP Bank (BVI) Limited, a member of the VP Bank Group of Liechtenstein, with offices in Vaduz, Zurich and Luxembourg, it is possible for ATU advantageously to arrange custodian services ‘in-house’ where appropriate. On a case by case basis, VP Bank can act as the Global or Master Custodian.
Investment Advisor
The Investment Advisor is often the fund’s promoter. The Investment Advisor, as the name implies, is responsible for recommending investments to achieve the fund’s goals within the parameters set by its Prospectus. The Investment Advisor gives investment and trading advice to the Investment Manager. The Investment Advisor may also be on the board of directors of the fund. ATU can provide corporate directors if desired and this is considered on a case by case basis, subject to the usual indemnity from the Fund’s promoter.
Fund Administrator
The functions of the Fund Administrator vary in extent from case to case but typically include:
the provision of the registrar and transfer agent for the investors’ shares (which includes maintaining the fund’s share register and processing the issue and redemption of shares),
the publishing of the fund’s net asset value (NAV) in accordance with the terms outlined in the Offering Memorandum,
in some cases the preparation of the fund’s annual financial statements and liaison with the auditors,
dealing with general shareholder enquiries etc.
The terms of the services to be provided are set out in a contractual agreement between the fund and the Administrator.
Our sister company, ATU Fund Administrators (BVI) Limited, is fully licensed under the BVI Mutual Funds Act as a Manager and Administrator and was the first company to be granted such a licence by the BVI regulatory authorities. ATU has considerable experience in the area of acting as Fund Administrator, and we are happy to provide a comprehensive range of services for our clients to suit each particular situation. Please refer to the summary of our services at the end of this brochure.
Auditor
Annual accounts need to be prepared, and for any public fund they need to be audited by a licensed BVI auditor (or recognised auditor outside the BVI). A number of the ‘Big Six’ accounting firms, who have extensive experience in this area, are represented in the BVI. There are also a number of smaller international accounting firms with a presence in the jurisdiction. For Private or Professional Mutual Funds, although there is no legal requirement to appoint an auditor, it is recommended that one be appointed.
Summary Listing of our Mutual Fund Services
Assistance with Mutual Fund Documentation (working in conjunction with the Promoter’s legal advisors):
Structuring Advice
Fund Prospectus / Offering Memorandum
Memorandum and Articles of Association of Investment Fund Company, or
Unit Trust Deed
Subscription and Redemption Forms
Share or Unit Certificates for Investors
Investment Management Agreement
Administrative Services Agreement
Discretionary Asset Management Agreement
Custodian Bank Agreement
Formation of Mutual Fund Company.
Formation of Investment Management Company and Investment Advisory Company if required.
Full domiciliary and registered office services.
Provision of nominee directors and company secretary if required.
Administration services, processing share subscriptions and issue of certificates (if required), handling and processing redemptions.
Agent for calculation of Fund Net Asset Values (NAV’s).
Custodian services for investments and cash management function.
Paying bank services for receipt of subscriptions and payment of redemptions.
Communications with fund investors, arranging for publication of fund prices in the financial press, performance reports and distribution of offering circulars as required.
Disbursement of dividends, professional fees, directors salaries, investment management and performance fees as appropriate within the terms of the Prospectus.
Holding of shareholders and board of directors meeting, as required.
Liaison with lawyers retained by the Fund, auditors and other authorised professional advisors.
Liaison with Government Authorities, ensuring compliance with The Mutual Funds Act.
Listing advice for rating agencies and for quotation on public stock exchange.
We will also be pleased to arrange introductions on your behalf to legal and accountancy services.
The next step...
If you feel that the opportunity is there for you to set up a new mutual fund and you are interested in exploring the possibilities further, we invite you to contact us for a detailed discussion, without obligation, at your convenience.
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