Kate Hodson Michael Killourhy Simon Schilder September 28 2022 Snapshot: single asset investment funds Ogier | Corporate Finance/M&A - British Virgin Islands Kate Hodson , Michael Killourhy, Simon Schilder Corporate Finance/M&A IntroductionBenefits of single asset fundsChoice of domicile and structureKey documentationIntroductionThere is continued and significant interest in setting up investment fund structures in the British Virgin Islands for the purpose of making single project, asset investments or co-investment structures. This represents a "deal by deal" approach where private equity (PE) or venture capital (VC) managers provide access to a specific investment, thereby allowing their investors the choice of whether or not to gain exposure to a particular asset.Key drivers of the rise in popularity of such structures have been the increasing preference of managers to institutionalise their club deals, raise funds quickly for pre-initial public offering investment opportunities, but also the fundraising challenges that may be faced in raising blind (or semi-blind) pool funds, particularly in the current investment environment. These single-asset investment structures can have simplified documentation and can be quick to launch.This article explores some of the benefits and structuring considerations for these single asset fund structures.Benefits of single asset funds Some benefits of single asset funds compared to blind pool funds are that:there are fewer unknowns, as assets are usually pre-identified;they exclude the uncertainties about the final geographical and sector exposure of the fund vehicle;they 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 are easier to define and estimate; andthey can launch with lower total capital commitments and can generally set lower minimum subscription thresholds. This can allow for a broader spectrum of investors.There are of course many reasons why a blind pool fund will be preferred (eg, diversification of portfolio risk, provides scale, ability to rely on skill of the general partner (GP) or manager to identify investment opportunities over a period of time and can improve the total ratio). However, a single asset fund might be a better fit for certain situations.Choice of domicile and structureIncreasingly, the British Virgin Islands have proved, together with the Cayman Islands, a most popular domicile for single asset funds. 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. Cost is also likely to play a factor.Single asset funds are typically structured as limited partnerships or limited companies. Whereas a partnership is the more familiar type of vehicle for PE or VC investments, limited companies may be the preferred vehicle in this case because it reduces formation and ongoing entity filing costs.The British Virgin Islands, like the Cayman Islands, have introduced a regulatory regime for closed-ended private investment funds. One significant distinction between the BVI and the Cayman Islands closed-ended fund regimes is that the definition of "private investment fund" in the British Virgin Islands 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 where there is no "diversification of portfolio risk".(1)Accordingly, it is not surprising to see sponsors and managers choosing to utilise the British Virgin Islands in establishing single asset funds. For a BVI asset fund that is not a private investment fund, as an unregulated entity, not only are there no annual filing fees to pay to the FSC, but it is also not a legal requirement to appoint an auditor to audit the fund's accounts The fund may therefore determine to reduce costs by not appointing an auditor, particularly where the fund will be investing in just one portfolio company whose accounts will themselves be audited.Key documentationKey documentation involved in the set-up of a BVI single asset fund includes:a term sheet setting out the terms of the offering, disclosures and risk factors (a term sheet might be omitted when replaced by a shareholders' agreement in the case of a corporate structure or when solely relying on the partnership agreement in the case of a partnership structure);a tailored memorandum and articles of association in the case of a corporate structure or a tailored partnership agreement in the case of a partnership agreement;a subscription agreement; andtypically, an investment management agreement or advisory agreement.For further information on this topic please contact Kate Hodson at Ogier's Hong Kong office by telephone (+852 3656 6000) or email ([email protected]). Alternatively, please contact Michael Killourhy or Simon Schilder at Ogier's British Virgin Islands office by telephone (+1 284 852 7300) or email ([email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.Endnotes(1) The Securities and Investment Business Act 2010 and the Private Investment Funds Regulations 2019.