Launching a Fund
We help clients launch closed-ended funds across multiple asset classes, and in this short guide, we share some of the insights we've gained along the way. While this is not exhaustive, we welcome the opportunity to discuss specific considerations with you, tailored to your unique circumstances.
1. Investors
Cornerstone
As a leading Financial Fund Manager, identifying a Cornerstone Investor or group of investors early is crucial. Cornerstone Investors often have specific Fund Structure or Fund Domicile preferences based on their previous investing history and tax status. While many jurisdictions are comparable in terms of cost and tax, the UK is a popular choice among many investors. However, it might be politically sensitive to ask your Cornerstone Investor to invest in a structure managed by a Host Fund Manager they are less familiar with.
Jurisdictions
Understanding the jurisdictions in which investors will be located helps us, as Fund Management Experts, procure the necessary fund licenses before any marketing activity begins. Identifying a prioritised “Top 10” jurisdiction list allows us to work with you and your legal advisors on a compliance Marketing Strategy.
Minimum Investment Target
Understanding the potential returns and associated costs of operating the structure helps in setting a minimum Investment Target that is economically viable for launch. This target should account for additional amounts to Final Close and any Abort Costs charged by Service Providers.
Investor Terms
Agreeing on the terms under which investors will commit capital to the fund is essential. As your Host Fund Manager, we review any Side Letters proposed for entry..
2. Fund structures
Choosing the right fund structure is vital, and as Fund Management Experts, we provide guidance on the following considerations:
Tax efficiency
Investors should not be financially worse off tax-wise by investing through your chosen fund structure compared to direct investment. A “tax transparent” structure, where investors pay tax rather than the fund entity, can be beneficial, especially where returns are likely to be mostly capital gains.
Limited liability
A structure that limits the liability of its members to their committed amounts is often preferable. Limited partnerships, particularly in the UK, offer such benefits but come with specific management restrictions.
Carried interest and co-investment
Your fund structure should accommodate carried interest and co-investment vehicles. We can manage these vehicles if required by local regulation.
Regulation
Fund structures determine regulation. For example, UK funds structured as limited partnerships are often classified as Alternative Investment Funds requiring operation by a Host Fund Manager.
3. Fund domicile
How to choose?
Choosing a fund domicile involves balancing investor preference, operating costs, and marketing eligibility.
Onshore vs. Offshore
Positives for Offshore:
Preferred by certain investors
Limited partners' details may not be public
Potential VAT advantages
No HMRC tax reference or fund account filing required
Negatives for Offshore:
Money laundering concerns
Need for offshore administrators and directors
Transfer pricing risk
4. Marketing the fund
Types of investor
Different investors have different needs. As Fund Management Experts, we categorize them as follows:
Pension Funds
Financial Institutions
Foundations and endowments
Sovereign wealth funds
Fund of Funds
Insurance companies
Family offices
High-net-worth investors
Channels
Identifying where and how you will market the fund is crucial. Options include in-person meetings, using placement agents, leveraging pre-existing relationships, and utilizing social media or other public forums.
Teaser deck
Prepare an initial teaser deck, ensuring it meets regulatory requirements and includes necessary disclaimers.
PPM
While not required in the UK, some form of PPM is often expected by institutional investors.
Marketing Licences
Post-Brexit, we assist with UK marketing licenses but advise engaging a qualified law firm for EU or USA registration exemptions.
5. Fund documents
Key legal documents include:
Limited Partnership Agreement (“LPA”)
The main document for the fund, establishing the legal structure and outlining the rights of investors, investment objectives, profit allocation, and more.
Subscription booklets
Completed by investors to commit to the fund, detailing capital contributions, representations, and eligibility confirmations.
Side letters
Separate agreements setting out variations of the standard terms of the fund, often used to accommodate regulatory or tax requirements.
6. Service providers
Choosing the right partners is crucial for long-term success. Key service providers include:
Legal Adviser
Provides a range of services from fund formation, compliance, and contractual agreements to risk management and corporate governance.
Host Fund Manager
Responsible for managing your Alternative Investment Fund, either permanently or until the investment adviser obtains their own FCA license.
Principal Firm
Manages the regulated activity of an Appointed Representative, ensuring compliance and proper conduct.
Fund Administrator
Handles administrative and back-office functions, including accounting, record-keeping, financial reporting, and compliance.
Depositary
Required for each AIF, responsible for cash monitoring, safekeeping of assets, and oversight of fund operations.
Learn how we can help you on your fund management journey.
