Setting up a regulated investment fund can seem a daunting and difficult task to the fledgeling fund manager. There are so many things to think about and so many pieces to this ‘fund-jigsaw’ puzzle.
A daunting puzzle? Not really. If you look closely, you’ll see that all the pieces fit together if connected in the right order.
The first piece of this fund-puzzle is to decide on the best jurisdiction to establish your investment fund. Which jurisdiction you choose will be determined by several factors.
There’s no point choosing a jurisdiction which is low cost but turns out not to be credible to investors or institutional counterparties.
Many clients make this mistake. They go for a relatively ‘low order’ fund jurisdiction because it is quick to set-up and inexpensive. However, they soon discover that the chosen jurisdiction produces a negative reaction.
Remember – some ‘low order’ jurisdictions are blacklisted by institutional counterparties. Therefore, the fledgeling fund manager needs to hit the road running and avoid falling at the first hurdle.
Here at Ifina, we sit down with our new fund managers and talk through the most suitable jurisdictional options for their prospective investor base and counterparties.
The second piece of this fund-puzzle is to decide on which type of fund structure is most suitable.
There are numerous fund structures to choose from – and determining the correct one will depend on several factors.
– What are the nationalities of the target investors?
– What are the anticipated assets under management (AUM) on day one?
– How many investors are anticipated at launch and after one year?
– What is the fund investment strategy?
All the above will help determine the correct and most suitable fund structure for the new manager.
Counterparties & Service Providers
The next piece of this fund-puzzle is to decide on the counterparties and service providers to the investment fund.
The choice of fund counterparties and service providers is crucial to presenting a credible and viable investment fund which will be promoted to prospective investors. The presentation is paramount.
Choosing a respectable, recognisable and regulated auditor firm, bank, custodian and broker gives investors a high degree of confidence that the fund is credible.
All investment funds should be audited and in the main fund jurisdictions this is a regulatory requirement.
Therefore, it is essential to engage a recognised audit firm to act for the fund. The obvious choice would be to appoint a big named, tier one auditor (the likes of KPMG, PwC, EY, BDO). However, this may not be possible or viable for a start-up fund, as AUM would not support the large audit firm fees. This said, there many other equally respectable international audit firms that provide a first-class service.
Of course, the manager could choose a small relatively unknown audit firm to cut costs. However, this would send the wrong signal to prospective investors.
Here at Ifina, we work with the major tier one audit firms and the internationally recognised lower tier audit firms.
The fund requires a bank account to take in investor subscriptions and pay out redemptions and the fund’s operating expenses.
The banker to the fund is probably one of the most important choices in this jig-saw puzzle. Investors want to see a recognisable name.
After all, they will be wiring their money to this bank account and they want to feel comfortable with the chosen bank. An internationally known banking name is crucial for investor comfort and to enhance the marketing presentation of the fund.
There are of course smaller banking groups, private banks and local jurisdictional banks that can provide this service. However, these may be relatively unknown to the international investor.
Ifina works with large international banking groups – and where possible provides a suitable banking solution to our client-funds.
The majority of the clients that come to Ifina already have an established broker/custodian relationship, which they have developed trading their personal or managed accounts.
Ifina works with all the main global brokerage firms, as well as the smaller bespoke brokers. Typically, the broker appointed to the fund is the firm that the client already knows. This said, we can recommend and refer the client to ‘institutional’ brokers which would not have been accessible to them when they were trading their personal accounts.
The overall objective is to present the prospective investor with a fund document which lists the names of reputable and regulated service providers and counterparties.
Do you need help setting up your investment fund? Email firstname.lastname@example.org and we can arrange a call. If you have any questions, please leave them in the comments below.