Looking to start your first investment fund? Here are some practical tips to help you succeed

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If you are considering launching your first alternative investment fund, be it in private equity, debt or real estate, it can be an exciting yet challenging time. 

There are a lot of factors to take into consideration to help you achieve your goals, some which you may not yet be aware about. Here are some key points to take on board which will hopefully make the process run smoother for you.

1.    Be prepared to commit for the long-term

Most funds have a minimum life-cycle of seven years, and most people with ambitions in this market will be thinking of starting a number of subsequent funds following the successful launch of the first. It isn’t something to enter into lightly.  

If it’s your fund, you’ll need to stick with it. You can’t simply change jobs when you’ve had enough – investors need to know that you are committed.

2.    Do the maths

Once you have identified a great investment opportunity, you will need to put together a robust financial model which clearly shows the potential Internal Rate of Return (IRR) of your proposed fund. To complete this process, you will need to gather a lot of data about your investment strategy and from the service providers you will need along the way, including their likely costs.

3.    Seeking regulatory approval

Marketing  and managing your investment opportunity are activities regulated by the Financial Conduct Authority. You will need authorisation to establish your fund and have conversations with potential investors. 

There are various ways to obtain FCA approval. 

One of the quickest routes to market is to use a Regulatory Umbrella service. 

This ensures the regulatory requirements are taken care of in a professional and cost-effective way and will get your FCA-approved investment fund to market quicker.

The Regulatory Umbrella option is proving an increasingly popular way for hopeful fund managers to overcome the regulatory hurdles that stand in their way.

4.    Put together a strong team

Creating and launching your fund will require specialist skills from:

·       A lawyer to draft the legal, constitutional documents for the fund;

·       Accountants to help with the financial model, which will need to be validated;

·       A fund manager, whose role requires regulation by the Financial Conduct Authority and includeshelping to draft the Investment Memorandum, and  Portfolio and risk mangement;

·       A fund administrator, who looks after the behind-the-scenes operations, for example to request drawdowns from investors, or to produce Net Asset Value calculations;

·       An auditor;

·       A depository, whose role is to check that the fund manager is doing their job properly;

5.    Marketing to potential investors

Strict rules govern which type of manager can market a fund to which type of investor.

This can be a minefield, so the simplest way to avoid falling foul of the FCA is to work with an experienced team of advisers.

You can only market your fund once you are authorised by the FCA, and once it has approved the fund. This process can take many months and can be very time-consuming.

6.    Start investing

You’ve formed your fund, have the necessary authorisation and are ready to go. The bank account is open, investors are ready to subscribe, you achieve the first close of the fund – and then the hard work begins. You start investing. Good luck!

If you are considering launching your first alternative investment fund and have any questions, please contact the team at Infinity.

 
Paul Wogan