Snapshot: single asset investment funds and Ogier's Single Asset Fund Solution

We continue to see significant interest in setting up investment fund structures for the purpose of making single project / asset investments such as in the context of pre-IPO investments, single asset co-investment and continuation vehicles, track record building for new managers or simply a strategic move for seasoned general partners (GPs) looking to execute opportunistically.

This is particularly prevalent for structures targeting artificial intelligence (AI) and tech companies, as managers and investors alike are seeking agile, efficient structures to capitalise on specific opportunities within this sector.

A single asset "fund" represents a "deal by deal" approach where GPs and managers provide access to a specific investment, thereby allowing their investors the choice of whether or not to gain exposure to the particular asset. Further, even where a blind pool fund has been raised, a single asset continuation vehicle allows GPs to section off an asset which might otherwise have to be sold prematurely with the possibility of raising new capital to unlock further value.

Key drivers for the rise in popularity of such structures have been the increasing preference of managers to institutionalise their club deals, raise funds quickly for pre-IPO investment opportunities, but also reflecting the rise in popularity of continuation funds. Fundraising challenges and exit challenges can also play a part in driving the use case for these structures.  These single asset investment structures can have simplified documentation and be quick to launch which has also played a part in their popularity.  

This snapshot explores some of the benefits and structuring considerations for these single asset fund structures as well as detailing how Ogier can assist with its Single Asset Fund Solution.

Benefits of single asset funds compared to blind pool funds

• Fewer unknowns as asset is usually pre-identified
• Excludes the uncertainties about the final geographical and sector exposure of the fund vehicle allowing greater control in portfolio construction for investors
• Can be set-up and launched quickly as less due diligence on the fund and manager is typically required and fund documentation may be simplified
• Total expenses easier to define and estimate
• Can launch with lower total capital commitments and can generally set lower minimum subscription thresholds. This can allow for a broader spectrum of investors
• Can tailor the liquidity of the investment vehicle to the specific asset

There are, of course, many reasons why a blind pool fund will be preferred (diversification of portfolio risk, provides scale, ability to rely on skill of the GP / manager to identify investment opportunities over a period of time, and so on). However, a single asset fund might be a better fit for certain situations.

Choice of domicile and structure

Cayman Islands and the British Virgin Islands (BVI) have proved two of the most popular domiciles for single asset funds in Asia. Generally, the choice of domicile will be determined based on the location of the prospective investors, the location of the underlying investment and the location of the manager and this matrix of factors will determine the best domicile from a tax, regulatory and investor familiarity perspective. Cost is also likely to play a factor given that these structures can be more expensive than blind pool funds.

Single-asset funds are typically structured as limited partnerships, limited companies or limited liability companies (in the case of the Cayman Islands and Delaware). Whereas a partnership is the more familiar type of vehicle for private equity (PE) / venture capital (VC) type investments, limited companies or limited liability companies may be the preferred vehicle in this case because it reduces formation and ongoing entity filing costs.

A segregated portfolio company (SPC) structure might also be an attractive structure. Fund managers can set up an SPC as a platform through which they roll out multiple funds, each represented by a separate segregated portfolio (SP). Both the Cayman Islands and BVI allow for the formation of SPCs. Some benefits of SPC structures are as follows:

• Once the initial structure is setup, the formation of a new SP is effected by way of board resolution (which is quicker than the process for setting up a new company)[1]
• Only need to appoint one board of directors (as there is only one company, the SPC)
• Opening a bank account for a new SP of an existing SPC is often less time-consuming than for a new standalone fund structure
• Cost reductions where setting up a number of funds, as it may be cheaper to use an SPC with multiple SPs rather than setting up multiple separate fund entities

Both the Cayman Islands and BVI have introduced a regulatory regime for closed ended private investment funds. One significant distinction between the Cayman and BVI closed ended fund regimes is that the definition of "private investment fund" in BVI stipulates that the fund should have the purpose of "diversification of portfolio risk". Therefore, it should be possible to interpret a 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 "diversification of portfolio risk."

On the other hand, in the Cayman Islands Private Funds Act (PF Act), the definition of "doesn't contain a 'diversification of portfolio risk' requirement" or component. As a consequence, single asset funds may fall within the definition of a "private fund" (regardless of the fact that there is no diversification of portfolio risk) and, if so, be required to register with the Cayman Islands Monetary Authority (CIMA). This will increase the costs of this vehicle compared to a non-regulated BVI structure.

Accordingly, it is not surprising to see sponsors and managers that are more cost-conscious (often due to the nature and size of the fund) determine to establish single asset vehicles in the BVI. For a BVI asset fund which is not a private investment fund and not regulated by the BVI Financial Services Commission, this reduces regulatory filing fees and allows flexibility around the appointment of an auditor and the timing of an audit as it is not a legal requirement to appoint an auditor to audit the fund's accounts on an annual basis. The fund may therefore determine to reduce costs by not appointing an auditor for the whole life cycle of the fund vehicle and reducing the frequency of the audit, particularly where the fund will be investing in just one portfolio company whose accounts will themselves be audited. Typically, BVI single asset funds are set-up as a company or partnership.

Regardless of the cost savings associated with the BVI structure, we continue to see significant interest in setting up Cayman Islands single asset fund structures, particularly where the size of the investment is significant so as to justify the regulatory cost of setting up a private fund. Investors may prefer a Cayman domiciled fund which may be more familiar to them or it may make sense to mirror the domicile of the original blind pool fund in the case of co-investment and continuation vehicles. Cayman also remains a popular choice where there is only one "investor" in the structure (as defined under 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 Cayman Islands domicile where their other funds are also formed in the Cayman Islands.

For information read our briefing about the Cayman Islands and BVI closed ended fund regimes. 

How Ogier can assist

Ogier's Single Asset Fund Solution provides a one-stop solution for setting-up your single asset fund and included the following services[3]:

• structuring advice from a BVI or Cayman legal perspective (Ogier is also in a position to advise on Guernsey, Jersey, Irish and Luxembourg laws)
• assisting with the formation of the fund vehicle and ongoing provision of registered office / agent services
• assisting on the documentation for the fund vehicle, including working with your onshore and in-house legal counsel
• advising on relevant regulatory considerations for the structure (from a BVI or Cayman perspective)
• providing independent directors to the board of the fund, where required
• providing investor services including investor on-boarding, accounting and FATCA & CRS (AEOI) services
• providing AML officer services, where applicable
• providing cash custody services including as a short-term solution where the fund's bank account cannot be opened in time for the launch

Get in touch with one of our investment funds experts to find out more.

About Ogier

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice