Directive - Systematic Growth Fund Inc. (2013-01-25)

Summary

This is an enforcement notice from the BVI Financial Services Commission summarising an amended Directive issued under section 40(1)(b) of the Financial Services Commission Act, 2001 against Systematic Growth Fund Inc. and a group of related public funds. The amended Directive updates an earlier Directive issued to the Fund on 15 August 2011, imposing enhanced reporting, cost restrictions, fee-structure reform and prospectus amendment requirements.

• Weekly reporting: The Fund must submit to the Commission weekly information (commencing 30 June 2011, until directed otherwise) covering portfolio assets 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 investigations or actions by other regulators.
• Fee and expense freeze: The Fund 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 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 administrative and operating costs of its investment manager, investment advisor or other service providers, including office costs, corporate accommodation, IT fees and other administrative expenses.
• New fee structure: By 31 March 2013 the Fund must develop a fee structure (including an investment manager compensation scheme) consistent with industry practice and approved by the Commission, then implement it within a period the Commission directs.
• Governance evidence: The Fund must provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Prospectus amendment: The Fund must amend its prospectus to remove references to accrual and payment of administrative and operating costs by third-party service providers, and add detailed disclosure on fees and expenses, related-party services involving Castlestone Management Incorporated, conflicts of interest, and any other disclosure required under the Public Funds Code, 2010.

The Directive was addressed to Systematic Growth Fund Inc. alongside a named list of other public funds (e.g. Aliquot Agriculture Fund Inc., Concerto Alternative Alpha Inc., Porcupine Global Macro Plus Inc.), all licensed under the Public Funds licence type. The matter is recorded under Matter ID INV011513/009.

Key obligations

• Submit weekly reports to the Commission (from 30 June 2011 until directed otherwise) covering portfolio assets, cash balances, portfolio value changes over US$500,000, liabilities, subscriptions, redemptions (paid and unpaid), payments/expenses with invoices, complaints, legal proceedings, and other regulators' actions.
• Cease paying all fees and expenses except specified carve-outs (management, load, entry/exit, Bloomberg, in-house legal), and obtain prior written Commission approval before paying fund administration, brokerage, custody, audit or legal fees.
• Discontinue office costs, corporate accommodation, IT fees and other administrative expenses relating to the investment manager, adviser or third-party service providers.
• Develop, by 31 March 2013, a Commission-approved fee structure and investment manager compensation scheme, and implement it within the period the Commission directs.
• Provide the Commission with copies of directors' and members' resolutions approving the new compensation scheme or fee structure.
• Amend the prospectus to remove references to accrual/payment of administrative and operating costs and add disclosure on fees, related-party services, conflicts of interest, and Public Funds Code 2010 requirements.

Applies to

public funds, investment business licensees, mutual funds

Deadlines

• 30th June 2011, until directed otherwise: Commencement of weekly reporting obligation to the Commission
• 31st March 2013: Deadline to develop a Commission-approved fee structure and compensation scheme