The BVI private fund structure is one of the options available when setting up an investment fund in the British Virgin Islands.
In this article, we’ll explore situations when a BVI Private Fund could make sense and important factors to consider before opening.
We’ll also discuss an often overlooked and extremely important consideration for BVI Private Funds, bank account opening.
This article is one in a series on private bank account opening, which includes topics to help you find the best banks and better understand offshore wealth management options.
These articles range from opening accounts in top private banking jurisdictions to unlocking unique solutions like Lombard credit and loans.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- BVI Private Fund Structures
- Bank Account Challenges for BVI Private Funds
- How Do I Set UP BVI Investment Funds?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
BVI Private Fund Structures
BVI Private Fund structures are open-ended funds. They are either limited to a maximum of 50 individual investors or they can only be offered privately. A defining feature of the BVI Private Fund is that it does not have a minimum investment for investors.
Whether a BVI Private Fund limits investors to a maximum of 50 or only offers the fund privately must be defined in the constitutional documents.
In practice, a BVI Private Fund is a mutual fund that is introduced to a closed group of individuals. These individuals must have a pre-existing relationship and cannot be onboarded as investors through traditional capital-raising methods.
Not surprisingly, the BVI Private Fund structure is an attractive option for individuals looking to set up a small fund for a private group of investors. However, this flexibility and limited size can also cause challenges, especially when it comes to banking. We will discuss this and other important considerations in the next section of the article.
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Bank Account Challenges for BVI Private Funds
Similar to investment funds that have been registered in other offshore jurisdictions, opening bank accounts for a BVI Private Fund can be challenging. And, while the primary objective of a fund is to invest and not open bank accounts, this is an important consideration that can impact the fund’s ability to carry out its activities.
The main challenges that BVI Private Funds face when opening bank accounts include:
Bank De-Risking
First and foremost, banks everywhere are still de-risking their client base, which means they are reducing their exposure to entities registered in offshore jurisdictions. In many cases, BVI remains an exception and is widely accepted by banks. However, this is not always the case and the additional onboarding requirements for funds can make them less desirable clients for banks.
Additional Compliance Requirements
When onboarding any entity, banks have to conduct due diligence on the principals, major shareholders, and the parties that they are transacting with on a regular basis. And, while a BVI Private Fund is limited to 50 investors, banks may view this as too much due diligence compared to the potential return that they’ll receive from the relationship.
Profitability of Funds as Clients for Banks
While it may seem counterintuitive, small (or private) investment funds do not tend to be very profitable clients for banks. This is because these smaller funds tend to invest directly through external brokerage platforms, have limited additional requirements, and (as mentioned) have additional compliance requirements. In other words, there is not a lot of opportunity for the bank to generate revenue. And, at the same time, it will cost the bank more than a normal company account to maintain.
Bank a BVI Private Fund Structure
In most cases, banks that are willing to open accounts for a BVI Private Fund will either ask for a sizeable deposit or for a portion of the fund’s investments to be executed through the bank.
In both instances, the demands of the bank can be a challenge since maintaining deposits means that funds are not invested, and executing investments through a bank often leads to increased execution costs.
With this in mind, BVI Private Funds (and small funds registered elsewhere), will need to balance their need for a bank account with their willingness to accommodate bank requirements.
How Do I Set Up BVI Investment Funds?
BVI investment funds are set up through registered agents operating on the island. That said, before contacting a registered agent, it’s important to confirm (a) you need a fund and (b) that a Private Fund is the correct choice.
BVI offers a number of alternative structures that could be worth considering as well. These may be Depending on the individual managing the fund and the objectives of the fund long term. However, in certain circumstances, it could make sense to consider BVI holding structures instead.
Alternative fund structures in the British Virgin Islands include Incubator Funds, Approved Funds, Professional Funds, and Public Funds.
Setting Up a Private Fund Structure in the British Virgin Islands
To set up a Private Fund structure in BVI, the fund must be registered and recognized by the BVI FSC. This requires the fund to complete the registration process through a registered agent.
As a leading offshore jurisdiction, BVI is home to a wide range of service providers. These service providers vary significantly in terms of the quality and cost of services they provide. With this in mind, it’s important to consider all of the variables to find a reputable agent.
Frequently Asked Questions
Below is the most common question that we receive from people interested in a BVI private fund structure. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
What Is a BVI Fund?
A BVI Fund can include one of several available structures. These include a Private Fund, Incubator Fund, Approved Fund, Professional Fund, and Public Fund. Each fund type caters to a specific type of investor, investor base, and desired capital.
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