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Source: Viv Wilson Archive

How To: Open a Tokenized Fund Swiss-style.

When Scotsman John Law fled England, he was convicted of murder and faced a life in prison. It was the year 1694, and England was enchanted by the great new invention called Initial Public Offering. Suddenly empty-shell companies could raise capital on a mere idea, leading to market bubbles of unprecedented scale and impoverishment of thousands. As to John Law’s fate? He became a minister of finance and central banker of the 17th century France, until he brought down the monetary system that he created and nearly bankrupted the French monarchy.

We hate ICOs because we hate when history repeats itself and we cannot see it coming. They say, what comes up must come down, and ICOs certainly did.

It certainly ain’t easy to write about benefits of tokenization amidst the ongoing crypto-winter, but what if now is the right time? The promise is big: Tokenization makes ANY asset instantly tradable, 24x7, globally without middlemen, and in a pre-programmed way, so that the token will for example distribute returns on a given date, or that it will know who & where can buy or sell it.

Of course, that is the promise of future. For an asset class like stocks, which are already highly liquid and global, tokenization doesn’t make much sense in its current stage of development. But for hundreds of other asset classes that are wholly illiquid, it does.

Venture capital disrupted.

Venture capital, for example, is an asset class that has been traditionally closed to anyone but a few ultra-rich. Cutting a VC fund in small pieces would open what is an exciting asset class to a much larger group of investors, thanks to the factor of tradability. It would also eliminate fund’s time constraints on exits, and allow the fund manager to publicly speak about the investments he/she makes, giving a positive media boost to some early-stage companies that can really use it.


Let’s agree that there are clear benefits to tokenizing (read ‘cutting to tradable pieces’) an investment fund. But how?

It is by design that a fund as a legal entity comprises a certain level of complexity. Fund is a legal vehicle that should protect wealth and allow investment. One of the first hurdles to overcome then is the choice of legal structure and jurisdiction.

Existing tokenized funds set up their operation in exotic off-shore jurisdictions that allow for a degree of flexibility and ‘lighter’ regulatory regimes.

  1. Cayman Islands

Cayman is the no.1 jurisdiction for offshore funds. Its laissez-faire regulatory regime, combined with professional vendors, good banking infrastructure and a tax neutral status make it a very attractive proposition. Attractive, but exotic.

The most obvious solution would be to set up a Registered Fund incorporated as an exempted private company (limited by shares) tokenizing its non-voting class of shares. Registered funds in Cayman are a class of open-ended funds that are regulated but do not need a license. CIMA will have to approve the fund via its registration process, which requires a preparation of an offering memorandum.

In a registered fund, the minimum amount invested per investor must be at least USD 100,000. Unlike for many other jurisdictions, there is no need to appoint an administrator and a custodian. The fund manager can be outside of Cayman.

As would be expected, Cayman funds must follow stringent anti-money laundering regulations and appoint an AMCO and MLRO, and a FATCA and CRS reporting officer. They also have to be audited by an independent Cayman auditor.

2. British Virgin Islands

BVI is another in the series of popular exotic jurisdictions for offshore funds.

Tokenized funds could set up in the BVI either as a Business Company limited by shares and apply for a recognition as a professional fund, in which case professional investor requirements would apply (net worth >USD1M), or as private funds without any minimum investment requirement, but with a strict requirement to include up to a maximum of 50 investors.

Both types of fund in the BVI must file their offering memorandum, and a business plan to the Financial Services Commission (FSC) for approval.

They must appoint at least two directors (one of which must be an individual), fund manager, administrator, custodian, auditor and authorized representative, but there is no requirement to have local directors nor auditors.

3. Bermuda

The crypto-friendly regulatory environment, tax-neutral status and flexible legal framework make Bermuda another viable exotic jurisdiction for fund set-up.

A tokenized fund can be established on Bermuda as an Exempted fund with minimal reporting requirements that can be marketed only to qualified investors, either with personal income in excess of USD200K, or net wealth of at least USD1M.

Funds on Bermuda have to appoint a number of service providers: an auditor, a custodian and fund administrator and a Bermudian officer, trustee or representative.

Registration of a fund on Bermuda can take as little as 1 day, and includes filling of a self-certification form together with the offering memorandum.


What no one has done yet, is to combine the layer of tokenization with the Swiss standard for wealth management.

The fund itself holds direct stake in the equity of companies invested in, while the tokenholders are directly entitled to the fund.

We have decided to tokenize a Swiss-Liechtenstein fund structure because it ensures highest investor protection and safety, with perhaps the world’s best service standard and a progressive and open regulatory environment.


Establishment of a fund is, of course, subject to strict review and approval of FMA, the local regulator, requiring among other the preparation of a comprehensive offering memorandum.

But that’s just the beginning.

The Liechtenstein-domiciled funds then fall within the remit of one of the several applicable regulatory frameworks*, each of which contains its own series of strict reporting and operational requirements.

(UCITS or AIF with their additional sub-forms as ELTIF (European Long-term Investment Fund), EuVECA (European Venture Capital Fund) or EuSEF (European Social Entrepreneurship Fund)

Operation of a fund is overseen by a licensed fund manager, who appoints and manages working relationship with custodian, auditor, regulated risk manager, and with an ironclad requirement for reporting to Liechtenstein Investment Fund Association.

Calculation and publishing of the fund’s portfolio value (NAV) is not a nice-to-have extra, but a strictly prescribed process involving external advisors from among the Big4 (PwC, KPMG, EY, Deloitte).

The appointment of the local custodian is, once again, an absolute necessity, fulfilling both the role of a depositary and a transfer agent.

It’s wealth management, after all.

While choosing an exotic fund domicile off-shore may be tempting (short-term cost-saving), it is the certainty of a renowned legal and regulatory framework that can ensure wealth preservation. Tokenization is a technology that truly revolutionizes the alternative fund industry, and as such it deserves a long-lasting and durable legal set-up.

In this article, we have greatly benefitted from the comprehensive legal manual provided by the flagtheory.

bardicredit is a member of the Alternative Investment Management Association (AIMA), a global association of hedge funds, private equity and VC funds with more than $2 trillion under management.



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George Salapa

George Salapa

Founder finstora. Thoughts on money & culture. Some poetry. Mostly recycled literature. Wrote for Forbes and Venturebeat before.