What is a Hedge Fund?
For those of you who are not familiar with the term, a hedge fund is 'an offshore investment fund, typically formed as a private limited partnership, that engages in speculation using credit or borrowed capital.'± A Hedge Fund is designed to protect investments from market uncertainty, spreading investments into many different pools as a way to manage risk. Though offshore hedge funds are carry more risk than the regular market, through proper risk management and financial portfolio construction, losses can be minimized.
BVI 'CLOSED-END' INVESTMENT MUTUAL FUNDS
The British Virgin (BVI) Islands represents an attractive offshore jurisdiction for establishing an financial company due to its lax regulatory structure and cheap formation costs.
A BVI Hedge Fund gives one an exposure to international markets in a low tax environment and can be formed as a Company, Unit Trust or Partnership taking on all the benefits afforded a global offshore company. The structure is extremely flexible making it an efficient jurisdiction to go offshore.
Difference between an 'open' and closed' ended fund
A BVI closed-end fund is different from an open-ended fund as investment assets are redeemable by the fund manager or through the terms of agreement rather than redeemable on demand which is mostly the case within a regular Mutual Fund.
As a result there can only be a fixed number of investment units for sale. Consequently, closed-end funds are not subject to regular licencing and supervisory requirements that a normal Hedge Fund would be under. The advantage is lower entry costs compared to the typical mutual fund.
The BVI Fund benefits a recent regulatory change that gives private equity and venture capital managers a ‘lighter touch’ regime so that it can compete in the modern offshore financial services industry.