By Andrew Maiden, Intertrust – While well-established fund managers are continuing to grow with the launch of larger and larger funds, there has also been a steady flow of first-time, spin-off and emerging managers setting up their own firms.
This new wave of fund managers has been partly driven by investor demand for the niche, tactical, added-value investment opportunities that the larger funds may pass over or simply not be aware of. The opportunities and rewards for both approaches continue to fuel interest and demand, and there is therefore a need to make sure that emerging fund managers get it right first time.
As of September 2017, there were more than 590 first-time or spin-off venture capital fund managers raising capital worldwide, up from 470 in 2016. More than 31 per cent of the venture capital funds that reached a final close in 2017 were first-time funds, compared to 25 per cent in 2016. One of the key drivers of this growth was performance as, when comparing the returns generated by 2006-2014 vintage venture capital funds, first-time managers generally outperformed the pool of experienced venture capital managers*.
Investors and managers from the more mature markets of the UK, Europe and the US have a long history of using Guernsey to domicile their funds, especially for private equity, real estate and infrastructure asset classes. The island’s track record and enviable reach have also made it well suited to provide managers with a platform to access the Middle and Far East, which are attracting investment because of the emergence of investor demand for yield and higher returns.
Through Guernsey, fund managers can currently reach more than 80 per cent of global wealth so, no matter where investors are based, a Guernsey-domiciled fund allows money to be raised in a large proportion of the global market.
The key areas emerging fund managers need to consider when setting up their first fund are:
• Fund structuring: The basis of a successful fund is an appropriate structure which requires a sophisticated understanding and analysis of the options. It is important for emerging managers to consult professional service providers at an early stage to determine what issues may impact on the structure of the fund.
• Fundraising: Fundraising can be a very time-consuming process so it is important not to underestimate this alongside the effort and cost involved.
• Fund administration: Having the right day-to-day administrative processes, procedures and infrastructure in place is something that many emerging fund managers do not consider as much as other aspects of launching a fund, which can be a crucial oversight. With regard to administration, having a range of related services underpinning the fund can considerably help minimise the risks and maximise success. One strategy frequently adopted by emerging fund managers is to outsource the administration to a trusted third party.
• Fund financing: Emerging fund managers need to consider whether they will need to use any financial products as part of their strategy and which provider would be best placed to provide these. It is not just the financing itself that needs qualifying, but also the range of other financial considerations such as insurance and escrow banking solutions. The financial aspects of running a fund are significant and working with the right partners can help simplify this aspect and free up managers to focus on running a fund.
• Fund governance: Investors are increasingly requiring independent oversight of the affairs of their funds, which has driven an increased demand for directors unaffiliated with the manager on private equity and real estate funds. The diversity of directors’ skills and experience is of utmost importance.
With this growth in emerging fund managers, Guernsey, with its established regulatory regime and expert fund services providers, can offer emerging fund managers the foundation to set up funds in an efficient, quality way. In safe hands, managers are able to concentrate on the business of managing portfolios and selecting assets.
To allow emerging fund managers to launch new funds in Guernsey, the Guernsey Financial Services Commission has a Private Investment Fund (PIF) classification which is designed to provide fund managers with greater flexibility and simplicity.
Some of the PIF benefits to emerging fund managers are:
• No prescribed disclosures – No need for a Prospectus or Private Placement Memorandum, which minimises costs and reduces processing time during launch.
• Maximum 50 investors – a PIF can be closed or open-ended and, while there can only be 50 investors, there is no limit on the number of offers that can be made.
• Application Process – A PIF can be registered and processed by the GFSC within one business day.
The route to launching a new fund for an emerging fund manager is challenging and while many new managers will likely be established in their field and have a good degree of relevant experience and insight, choosing Guernsey to domicile a fund can provide comfort throughout the process – from a concept to the launch and ongoing operations of a fund. With expert advisers and quality service providers, new fund managers are in good hands in Guernsey. n
*Data from a report published by Preqin in November 2017 – Up & Away: Launching A First-Time Venture Capital Fund
Intertrust offers a full range of tailored and holistic fund services, from setup to administration, for private capital funds including: private equity, debt, real estate, fund of funds, infrastructure and venture capital. They have a dedicated, knowledgeable and global team of specialists, with a significant presence in key financial centres including the Channel Islands, Luxembourg, Ireland, Hong Kong, Cayman and the US. Intertrust’s funds client list comprises of some of the largest and most experienced fund managers in the world, as well as some of the most dynamic and skilful venture capital groups.
If you would like further information on the services provided by Intertrust, please contact Andrew Maiden – Andrew.email@example.com