Directive - Balanced Opportunity Inc. (2013-01-25)

Summary

This is an enforcement Directive issued by the BVI Financial Services Commission under section 40(1)(b) of the Financial Services Commission Act, 2001, amending an earlier Directive dated 15 August 2011. It applies to a named group of public funds, including Balanced Opportunity Inc. and seventeen related funds (several linked to Castlestone Management Incorporated), and imposes ongoing reporting, spending restrictions, and prospectus amendment requirements on them.

• Weekly reporting: Each Fund must submit to the Commission, on a weekly basis (commencing 30 June 2011, until directed otherwise), detailed information on portfolio assets and values, cash balances, explanations for portfolio value changes over US$500,000, liabilities, subscriptions, redemptions requested and paid, unpaid redemption requests, payments and expenses with supporting invoices, investor complaints, legal proceedings, and any regulatory investigations or actions by other regulators.
• Fee and expense freeze: The Funds must cease and desist from paying all fees and expenses, except specified categories (management fees, load fees, entry fees, exit penalties, Bloomberg fees, in house legal costs, and fund administration, brokerage, custody, audit and legal service fees), and any other fee payment requires the Commission's prior written approval.
• Cost cuts: The Funds must discontinue certain administrative and operating costs of their investment manager, investment advisor or other functionaries/third party service providers, including office costs, corporate accommodation, IT fees, and any other administrative fees or expenses.
• New fee structure: Each Fund must develop, by 31 March 2013, a fee structure (including an investment manager compensation scheme) consistent with industry practice, subject to the Commission's approval, and implement it within the period the Commission directs in writing.
• Governance evidence: Each Fund must provide the Commission with copies of directors' and members' resolutions approving the compensation scheme or fee structure.
• Prospectus amendments: Each Fund must amend its prospectus to remove references to accrual and payment of administrative/operating costs of its investment manager and related parties, and to add further disclosure on fees and expenses, services and contracts with related parties of Castlestone Management Incorporated, conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The Directive names the following funds as subject to these requirements: Aliquot Agriculture Fund Inc., Global Property Growth and Income REITS Fund Inc., Aliquot Commodity Fund Inc., Inflation Target Recovery Fund Inc., Aliquot Gold and Precious Metals Equities Fund Inc., Intelligent Portfolio (IQ Asset Allocation) Inc., Aliquot Gold Bullion Inc., Next 11 Emerging Fund Inc., Aliquot Precious Metals Inc., Porcupine Absolute Return Fund Inc., Balanced Opportunity Inc., Systematic Growth Fund Inc., Collection of Modern Art Inc., World Index Growth and Income Fund Inc., Concerto Alternative Alpha Inc., Consistent Return (Cash Management) Fund Inc., Emerging Markets Growth and Income Fund Inc., and Porcupine Global Macro Plus Inc.

Key obligations

• Submit weekly reports to the Commission covering portfolio assets, cash balances, value change explanations over US$500,000, liabilities, subscriptions, redemptions (paid and unpaid), payments/expenses with invoices, investor complaints, legal proceedings, and other regulatory actions, commencing 30 June 2011 until directed otherwise
• Cease paying all fees and expenses except a specified list, and obtain the Commission's prior written approval for any other fee payments
• Discontinue specified administrative and operating costs relating to the investment manager, investment advisor, or other service providers
• Develop a Commission approved fee structure, including investment manager compensation scheme, by 31 March 2013 and implement it within the period the Commission directs
• Provide the Commission with copies of directors' and members' resolutions approving the compensation scheme or fee structure
• Amend the Fund's prospectus to remove references to certain administrative/operating cost arrangements and add specified additional disclosures, including those required under the Public Funds Code, 2010

Applies to

public funds, investment business licensees

Deadlines

• commencing 30th June 2011, until directed otherwise: Weekly submission to the Commission of specified portfolio, cash, liability, subscription, redemption, payment, complaint and litigation information
• no later than 31st March, 2013: Develop a Commission approved fee structure including an investment manager compensation scheme