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A Strategic Approach to Setting up a Fund


by Joanne MacDonald – Adviser

When you’re thinking of setting up a fund, it’s really important to get all the ducks in a row and be strategic rather than going about the process in an ad hoc manner.

An ad hoc approach often reflects someone with an idea that is only partially formed. They may not have thought about who the product is aimed at – or its duration. They might be confused about whether it’s targeted at retail or wholesale investors.

And that obviously has an impact on how you would market the product and the kind of documentation you would require.

You also need (at the start!) to think about a wind up or exit strategy and that varies with different types of investors. That, in turn, will influence the fees you put in place and how you will deal with influences on the product once it’s up and running.

When you’re thinking strategically about a product all factors are taken into account. You will have already answered questions like:

  • If there is a market correction how do we deal with that?
  • What communication process do we have in place with investors?
  • What would the impact be on Retail and Institutional investors?

(The latter is often more aware of those impacts on a domestic and international level).

As you can see, a strategic (front end) approach factors in the many important influences that can impact a product once it goes to market.

As it does with the regulatory and administrative imposts involved with different products. A lot of this has to do with your regulator engagement, the documentation you need to produce, product disclosure information and the ongoing relationship management with investors.

A strategic approach is more orderly than a fly by the seat of your pants ad hoc approach. It guarantees a more resilient product in the face of any crisis.

The Licensing and Compliance administration is huge and raises the question as to whether you need your own licence as opposed to using someone else’s.

I think you need to be extraordinarily committed to building a lot of funds over, say, a 3-5 year timeframe to be able to get real value out of having a licence.

Getting the licence itself is not particularly expensive (a few thousand dollars), but in reality that’s the simple part of the process. If you’re looking to build a bespoke fund (or even several) there are three main factors to consider:

  • Time
  • Cost, and
  • The ongoing management of the licence.

It takes about 150 business days on average to apply for a Financial Services Licence, but can take longer. A managed investment is a tier one product and, from a regulatory management point of view, is considered highly complex with a lot of risk attached to it.

The regulator, rightly, takes a lot of time checking the bona fides of any applicant.

If you’re adding things to the product offering (like derivatives or foreign exchange) then the level of complexity will be reflected in even more administrative hurdles. The application requires a huge amount of paper work covering everything from risk-management frameworks to how you handle conflicts of interests.

Your time could better be spent on developing your product and taking it to market.

Keep in mind there is also a minimum capital adequacy requirement.

Managed funds providers require a minimum amount of $150,000 and, depending upon the number of funds under management, that can go as high as $20 million. That capital needs to sit there. Then there are various insurances: personal, professional indemnity, electronic crime and fraud protection…and many more.

There are other areas and all are costly. In any cost/benefit analysis it is easy to see how the compliance burden can distract from the central aim.

So, if you want to focus on your product and building a business as an investment manager you can virtually “rent” our licence to launch your product.

It is simpler and far more cost effective to use ours than to jump through all the (time-consuming and enthusiasm sapping) hoops of getting your own.

And we’re not only providing the licence…but the entire back office!

That way investment managers can focus on what they do best and we take care of the rest.

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