The British Virigin Islands (BVI) is a popular jurisdiction for many offshore hedge funds to be located.  The BVI is known to have good financial oversight and relatively reasonable offshore hedge fund formation fees.  Over the past year the BVI Financial Services Commission (FSC) has become more involved in hedge fund oversight as political pressure increases.  It is expected that the BVI’s Mutual Funds Law will undergo changes within the next 6 months to a year because of this political pressure.

In addition, on September 9 the FSC surprisingly announced that BVI hedge funds (known as “mutual funds” in the BVI) will need to submit a yearly Annual Return to the FSC which provides information about the fund to the FSC.  This is a new requirement for all BVI based hedge funds.  Before this year the FSC had a voluntary mutual funds survey which requested information similar to the information requested in the Annual Return.  Certain closed end funds (generally private equity funds established in the BVI) will not need to submit the Annual Return.

BVI Annual Return Requirement

The items a fund will need to submit are:

–    Basic information on the fund and its service providers, including the registered agent
–    Financial information including:

Beginning NAV
Total subscriptions
Total redemptions
Net income/ net loss
Dividends/ distributions
Ending NAV
Year end gross assets

–    General description of the fund’s asset allocation (but not individual positions)

The Annual Return will need to be submitted to the FSC by June 30 of 2009.  Funds which do not submit the Annual Return by that date may face an enforcement action.

A sample Annual Return can be found here: sample-annual-return

What this means for offshore hedge funds

With regard to this new requirement, current BVI funds are going to need to complete the Annual Return.  While the Annual Return will not be a huge resource drain, it will take some time to complete.  Generally most of the questions can be answered fairly quickly by the hedge fund manager or by an assistant.  Some of the information may require input from the hedge fund administrator and potentially the hedge fund attorney as well.

In the future, this seems to be the first step towards greater scrutiny and disclosure requirements from offshore hedge fund jurisdictions.  However, it is unclear whether this will affect the number of start up funds which will be based in the BVI as the intrusion is relatively mild.  However, it may mean that other offshore jurisdictions such as Nevis, Guernsey and Dubai become more popular in the future.

Please see guidance from here from Maples and Calder, an offshore law firm: BVI Annual Return Requirement