06 July 2022
The road to setting up a new fund is paved with challenges, especially for first-time fund managers without a proven track record. The process is generally more complex, expensive, and time-consuming than expected.
This article will explore the top challenges that new fund managers should be aware of, and how to overcome them.
The most important selections are your fund administrator, bank, legal counsel, and payroll/benefits administrator. Engage with these service providers—and a fund administrator in particular—about six to twelve months ahead of your first close.
What to look for in a service provider:
Professional, experienced service providers have another benefit: they help reassure LPs, who want to see that a new fund is able to manage the practical side of fund management.
Regulatory and compliance considerations loom large for first-time fund managers. On top of the unpleasant consequences of a misstep, regulations are complex and ever-changing.
Despite the complexity, fund managers must be aware of how compliance law applies to their fund. Some fund administrators have well-established processes for investor onboarding, including AML/KYC, a common stumbling block for funds hoping to pass an audit.
Of course, the extent of compliance law will depend on jurisdiction. Selecting the right jurisdiction for your fund is not necessarily a simple task with an obvious answer.
Here are a few factors to consider when selecting the right jurisdiction:
Cost does not always intimate value. We know this intellectually, but it’s tempting to forget that lesson when setting up a new fund. Keep in mind that a product or service provider priced competitively against the competition will not necessarily cost less in the long run.
Select products and service providers based on their level of compatibility with your fund and your long-term strategy. Any products you choose should suit the requirements of your investors and the mandate of the fund, with appropriate costing.
The right tax and structuring advice is critical for a fund that is efficient and well-run over the long haul. Taxation of elements like carried interest, for instance, can be complex. Some jurisdictions (like the UK) have implemented tax regimes that impose charges on fund returns that fall outside the definition—and that’s just one taxable item.
Among the other factors to consider are:
At Fairway Group, our extensive expertise has given us a deep understanding of the complexities encountered by new and emerging funds. Our highly qualified team ensures that we provide a proactive, director-led service to all clients, irrespective of fund size.
Our suite of fund administration services includes director, company secretarial, compliance, accounting, and investor reporting. Contact us today to learn more.