Snapshot: Single Asset Investment Funds – Commentary

Introduction
Advantages of Single Asset Funds
Choice of domicile and structure
Key documents

Introduction

There is ongoing and significant interest in the establishment of investment fund structures in the British Virgin Islands for the purpose of carrying out unique projects, asset investments or co-investment structures. It is a “deal by deal” approach in which private equity (PE) or venture capital (VC) managers provide access to a specific investment, allowing their investors to choose whether to gain exposure or not 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 investment opportunities ahead of the initial public offering, but also fundraising challenges. that can be encountered during blind (or semi-private) fundraising. -blind) pool funds, especially in the current investment environment. These single-asset investment structures can have simplified documentation and can be launched quickly.

This article explores some of the benefits and structuring considerations of these single-asset fund structures.

Advantages of Single Asset Funds

Some advantages of single asset funds over blind pooled funds are:

  • there are fewer unknowns, because the assets are generally pre-identified;
  • they exclude uncertainties about the final geographic and sectoral exposure of the fund’s vehicle;
  • they can be set up and launched quickly as less fund and manager due diligence is usually required and fund documentation can be simplified;
  • total expenditures are easier to define and estimate; and
  • they can launch with lower total capital commitments and can generally set lower minimum subscription thresholds. This can broaden the range of investors.

There are of course many reasons why a blind pool fund will be preferred (e.g. portfolio risk diversification, provides scale, ability to rely on the skills of the general partner or manager to identify opportunities for investment over a period of time and can improve the total ratio). However, a single asset fund might be better suited to certain situations.

Choice of domicile and structure

Increasingly, the British Virgin Islands has proven, along with the Cayman Islands, to be the most popular domicile for single-asset funds. 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 private equity or venture capital investments, LLCs may be the preferred vehicle in this case, as they reduce formation and filing costs. ongoing entities.

The British Virgin Islands, like the Cayman Islands, have a regulatory regime in place for private closed-end investment funds. An important distinction between the BVI and Cayman Islands closed-end fund regimes is that the definition of “private investment fund” in the British Virgin Islands states that the fund must have the objective of “diversifying portfolio risk”. . 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 where there is no “diversification portfolio risk”.(1)

As a result, it’s no surprise to see sponsors and managers choosing to use the British Virgin Islands to create single-asset funds. For a BVI asset fund that is not a private equity fund, as an unregulated entity, not only is there no annual filing fee to be paid to the FSC, but there is no Nor is it mandatory to appoint an auditor to audit the fund’s accounts. The fund may therefore decide to reduce its costs by not appointing an auditor, in particular when the fund only invests in a single portfolio company whose accounts will themselves be audited.

Key documents

Key documentation involved in setting up a BVI Single Asset Fund includes:

  • a term sheet setting out the terms of the offer, disclosures and risk factors (a term sheet may be omitted when replaced by a shareholders’ agreement in the case of a corporate structure or when it relies solely on the partnership agreement in the case of a structured partnership);
  • a memorandum of association and appropriate articles of association if it is a corporate structure or an appropriate social contract if it is a social contract;
  • a subscription contract; and
  • typically an investment management agreement or an advisory agreement.

For more information on this subject, please contact Kate Hodson at the Ogier office in Hong Kong by phone (+852 3656 6000) or email ([email protected]). Otherwise, please contact Michel Killourhy Where Simon Schilder at the Ogier British Virgin Islands office by telephone (+1 284 852 7300) or by email ([email protected] Where [email protected]). The Ogier site is accessible at the address www.ogier.com.

Endnotes

(1) The Securities and Investment Business Act 2010 and the Private Investment Funds Regulations 2019.

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