Directive - Porcupine Absolute Return Fund Inc. (2013-01-25)

Summary

This is an enforcement notice from the BVI Financial Services Commission publishing an amended Directive issued under section 40(1)(b) of the Financial Services Commission Act, 2001. It applies to Porcupine Absolute Return Fund Inc. and a group of related public funds (including other Aliquot, Consistent Return, Emerging Markets Growth and Income, and Porcupine Global Macro Plus funds) associated with Castlestone Management Incorporated. The amended Directive updates an earlier Directive issued to the Fund on 15 August 2011, tightening reporting, expenditure and disclosure controls.

• Weekly reporting: The Fund must submit detailed weekly reports to the Commission covering portfolio holdings and valuations, cash balances, explanations for 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 actions by other regulators.
• Fee freeze: The Fund must cease paying most fees and expenses, except for specified categories (management, load, entry, exit penalty, Bloomberg and in-house legal fees), and must obtain the Commission's prior written approval before paying fund administration, brokerage, custody, audit or legal service fees.
• Cost discontinuation: The Fund must stop incurring certain administrative and operating costs of its investment manager, adviser or other service providers, including office costs, corporate accommodation, IT fees, and any other administrative expenses.
• New fee structure: The Fund must develop, by 31 March 2013, an industry-standard fee structure (including an investment manager compensation scheme) for the Commission's approval, and implement it within the timeframe the Commission subsequently directs.
• Governance evidence: The Fund must provide the Commission with copies of directors' and members' resolutions approving the new fee structure or compensation scheme.
• Prospectus amendment: The Fund must amend its prospectus to remove references to accrual and payment of certain administrative and operating costs, and to add more detailed disclosure on fees and expenses, related-party services and contracts involving Castlestone Management, conflicts of interest, and any other disclosures required under the Public Funds Code, 2010.

The notice is a published enforcement record rather than general guidance, and it is directed specifically at the named funds and their functionaries rather than the wider industry.

Key obligations

• Submit weekly reports to the Commission on portfolio assets, cash balances, liabilities, subscriptions, redemptions, payments, complaints, legal proceedings and regulatory actions, commencing 30 June 2011 until directed otherwise
• Cease payment of all fees and expenses except specified permitted categories, and obtain prior written Commission approval for administration, brokerage, custody, audit and legal service fees
• Discontinue incurring specified administrative and operating costs (office costs, corporate accommodation, IT fees, other administrative expenses)
• Develop and submit for Commission approval a new fee structure and investment manager compensation scheme no later than 31 March 2013, and implement it within the period the Commission directs
• Provide the Commission with copies of directors' and members' resolutions approving the fee structure or compensation scheme
• Amend the Fund's prospectus to remove references to certain cost accruals and to add enhanced disclosure on fees, related-party services, conflicts of interest, and Public Funds Code requirements

Applies to

public funds, mutual funds, investment business licensees

Deadlines

• commencing 30th June 2011, until directed otherwise: Weekly submission of detailed fund information to the Commission
• no later than 31st March 2013: Develop a Commission-approved fee structure and compensation scheme for the investment manager