Snapshot: Single Asset Investment Funds and Single Asset Fund Solution from Ogier – Fund Management / REIT
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We continue to see significant interest in setting up investment fund structures to make investments in unique projects/assets. It is a “deal by deal” approach where private equity (PE)/venture capital (VC) managers provide access to a specific investment, allowing their investors to choose whether or not to gain exposure. to a particular asset.
The main drivers behind the rise in popularity of these structures have been the growing preference of managers to institutionalize their club deals, raise funds quickly for pre-IPO investment opportunities, but also the fundraising challenges that can be encountered during blind (or semi-blind) lifting. ) mutual funds, especially in the current investment environment. These single-asset investment structures can have simplified documentation and be launched quickly.
This snapshot explores some of the benefits and structuring considerations of these single-asset fund structures and details how Ogier can help its Single Asset Fund Solution.
Some advantages of single asset funds over blind pool funds
- Fewer strangers because the asset is usually pre-identified
- Excludes uncertainties on the final geographic and sector exposure of the fund vehicle
- Can be set up and launched quickly as less fund and manager due diligence is typically required and fund documentation can be simplified
- Total expenses easier to define and estimate
- Can be launched with lower total capital commitments and can generally set lower minimum subscription thresholds. This can allow a wider range of investors
There are of course many reasons why a blind pool fund will be preferred (diversification of portfolio risk, provides scale, ability to leverage GP/manager skills to identify investment opportunities over a time, etc). However, a single asset fund might be better suited to certain situations.
Choice of domicile and structure
The Cayman Islands and, increasingly, the British Virgin Islands (IVB), have proven to be the most popular domiciles for single-asset funds in Asia. Generally, the choice of domicile will be determined by the location of potential investors, the location of the underlying investment and the location of the manager. Cost is also likely to play a role.
Single asset funds are usually structured as limited partnerships or limited liability companies. While a partnership is the most familiar type of vehicle for PE/VC type investments, LLCs may be the preferred vehicle in this case, as they reduce entity formation and filing costs by Classes.
A separate holding company (SPC) structure could also be an attractive structure. Fund managers can set up an SPC as a platform through which they deploy multiple funds, each represented by a separate distinct portfolio (PS). The Cayman Islands and the BVI allow the formation of SPCs. Some advantages of SPC structures are:
- Once the initial structure is in place, the formation of a new SP is done by resolution of the board of directors (which is faster than the process of creating a new company)1
- Just appoint one board (because there is only one company, SPC)
- Opening a bank account for a new SP of an existing SPC often takes less time than for a new standalone fund structure
- Reduced costs when creating a number of funds, as it can be cheaper to use an SPC with multiple SPs rather than creating multiple separate fund entities
The Cayman Islands and the BVIs have introduced a regulatory regime for private closed-end investment funds. An important distinction between the Cayman and BVI closed-end fund regimes is that the BVI definition of “private investment fund” states that the fund must have “portfolio risk diversification” as its objective. Therefore, it should be possible to interpret an BVI single-asset fund as not being subject to the registration and other operational requirements imposed by the relevant BVI legislation.2 where there is no “portfolio risk diversification”.
In contrast, in the Cayman Islands Private Funds Act (FP Law), the definition of “does not contain a requirement or component of ‘portfolio risk diversification'”. Accordingly, single-asset funds may fall under the definition of a “private fund” (regardless of the fact that there is no portfolio risk diversification) and, where applicable, be required to register with the Cayman Islands Monetary Authority. This will increase the costs of this vehicle compared to the BVI structure.
As a result, it’s no surprise to see more cost-conscious sponsors and managers (often due to the nature and size of the fund) deciding to create single-asset funds at BVIs. For a BVI asset fund that is not a private equity fund, not only is there no annual filing fee to be paid to the FSC, but there is also no requirement to appoint an auditor to audit the fund’s accounts (as the structure of the fund is not regulated by the BVI Financial Services Commission). The fund may therefore decide to reduce its costs by not appointing an auditor, in particular if the fund only invests in a single portfolio company whose accounts will themselves be audited. Typically, BVI single asset funds are incorporated or incorporated.
Regardless of the cost savings associated with the BVI structure, we continue to see the value of implementing single asset fund structures for the Cayman Islands, particularly where fund size is significant in order to justify the regulatory cost. setting up a private fund. Caymans also remain a popular choice where there is only one “investor” in the structure (as defined in the PF Act) and therefore no requirement to register with CIMA as a “private fund”. “. GPs and managers may also prefer to maintain consistency and use a home in the Cayman Islands where their other funds are also trained in the Cayman Islands.
For more information on the Cayman Islands and BVI closed fund regimes, you can read our briefing here.
How Ogier can help you
At Ogier Single Asset Fund Solution provides a one-stop solution for building your unique asset fund, including the following services3:
- Provide structural advice from a BVI or Cayman legal perspective (Ogier is also able to advise on the laws of Guernsey, Jersey, Ireland and Luxembourg)
- Assist in fund vehicle formation and ongoing provision of head office/agent services
- Assist with fund vehicle documentation, including working with your onshore and in-house legal counsel
- Advise on regulatory considerations relevant to the structure (from a BVI or Cayman perspective)
- Provide independent directors to the board of directors of the fund, if necessary
- Provide investor services, including investor onboarding and FATCA and CRS (AEOI) services
- Provide AML agent services, where applicable
- Provide cash custody services as a short-term solution when the fund’s bank account cannot be opened in time for launch
1 However, in the BVI, an SPC is required to obtain FSC approval for the establishment of an SP and an SPC is not permitted to establish an SP without the prior written approval of the FSC.
2 The Securities and Investment Business Act, 2010 and the Private Investment Funds Regulations, 2019.
3 Services provided by Ogier and Ogier Global
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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