Directive - Intelligent Portfolio (IQ-Asset Allocation) 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 of 15 August 2011. It applies to Intelligent Portfolio (IQ-Asset Allocation) Inc. and a group of related public funds, restricting their financial operations and requiring enhanced reporting and disclosure pending further Commission review.

• Weekly reporting: Each Fund must submit weekly reports (commencing 30 June 2011, until directed otherwise) covering portfolio holdings and valuations, cash balances, explanations of portfolio value changes over US$500,000, liabilities, subscription and redemption schedules, 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: Funds must cease and desist paying all fees and expenses except management fees, load fees, entry fees, exit penalties, Bloomberg fees and in house legal costs, and except fund administration, brokerage, custody, audit and legal service fees paid with the Commission's prior written approval.
• Cost cuts: Funds must stop incurring office costs, corporate accommodation costs, IT fees and costs, and any other administrative fees or expenses relating to the day to day activities of the investment manager, investment adviser or other functionaries or third party service providers.
• New fee structure: Each Fund must develop, by 31 March 2013, a Commission approved fee structure (including a compensation scheme for the investment manager) consistent with current industry practice, and implement it within a period the Commission directs.
• Governance evidence: Funds must give the Commission copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Prospectus amendments: Funds must amend their prospectuses to remove references to accrual and payment of the investment manager's/adviser's administrative and operating costs, and to add detailed disclosure on fees and expenses, related-party services and contracts involving Castlestone Management Incorporated, conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The Directive names Intelligent Portfolio (IQ-Asset Allocation) Inc. alongside a group of other Aliquot, Porcupine and related public funds as jointly subject to these amended requirements, which remain in force until the Commission directs otherwise.

Key obligations

• Submit weekly reports to the Commission on portfolio assets, cash balances, large value changes, liabilities, subscriptions, redemptions (paid and unpaid), payments/expenses with invoices, complaints, legal proceedings and regulatory actions, commencing 30 June 2011 until directed otherwise
• Cease and desist paying all fees and expenses except specified categories, and obtain prior written Commission approval for administration, brokerage, custody, audit and legal service fees
• Discontinue incurring office, corporate accommodation, IT and other administrative costs relating to the investment manager, adviser or third party service providers
• Develop a Commission approved fee structure and compensation scheme for the investment manager by 31 March 2013 and implement it within the period the Commission directs
• Provide the Commission with directors' and members' resolutions approving the new fee structure or compensation scheme
• Amend the fund's prospectus to remove references to accrual/payment of administrative and operating costs and to add disclosure on fees, related-party services, conflicts of interest and other Public Funds Code, 2010 requirements

Applies to

public funds, mutual funds, investment business licensees

Deadlines

• commencing 30th June 2011, until directed otherwise: Weekly submission of specified portfolio, cash, liability, subscription, redemption, payment and complaint information to the Commission
• 31st March, 2013: Deadline to develop a Commission approved fee structure and compensation scheme for the investment manager