Case Study: Pre-Setup Fund Advisory Supporting Strategic Fund Formation and Market Readiness

Background on Case Study Pre-Setup Fund Advisory

A private management was considering the introduction of a new institutional and accredited investors private investment fund. Although the team was highly investment knowledgeable and with a well-defined strategy, it was still in the process of forming funds and had yet to make some of the most important structural, regulatory as well as operational decisions.

The management realised the need to have a advance structured pre-setup analysis before committing resources to fund incorporation, licensing and capital raising. The initial choices concerning the fund form, location and regulatory route, and choice of service provider would have a long-term effect on compliance, cost-effectiveness, and investor trust.

The team also used our Pre-Setup Fund Advisory Services to offer strategic advice before formal fund establishment in order to make informed decision-making and minimize the execution risk.

Issues and Challenges

The pre-set-up process had a number of challenges typical of new and new-to-fund fund managers.

Structural uncertainty was one of the challenges. Depending on the target investors, investment strategy, taxation and regulatory anticipations, the team had to identify the most suitable fund vehicle and jurisdiction. The alternative was in the form of various fund structures and regulatory routes, all carrying their own implication.

The other problem was regulatory preparedness. The team needed to understand the licensing needs, regulatory timeframes and the compliance requirements that fund managers and fund vehicles will have. The risk of misalignment between the proposed fund structure and licensing feasibility was there without prior planning of regulatory.

Positioning was also an issue in commerce. There is an increasing demand by investors to understand better governance, risk management, valuation processes, and operational strength even during the pre-launch stage. The team must have been keen to make sure that the proposed fund structure could pass the due diligence expectation of an investor.

There was also operational complexity that contributed to the challenge. Resolutions regarding administrators, custodians, auditors, and legal advisors among other service providers were required to be synchronized, but the team did not have a clear arrangement to assess and prioritize these resolutions.

Lastly, there was the execution risk. A direct move into a fund set up without thorough pre-set up evaluation may lead to an expensive restructuring, regulatory delays or investor confidence that may be lost as the process progresses.

Objectives

The main aim of the engagement was to assist the investment team in making informed, strategic decisions, prior to making a formal commitment towards fund set up.

In particular, the team set the goal of:

• Explain best structure of funds and jurisdiction.
• Know regulatory/licensing requirements.
• Consist investment strategy with viable operational and compliance frameworks.
• Set a roadmap of fund establishment and launching.
• Increase investor preparedness and investor credibility before the capital raising.

The advisory engagement was meant to offer transparency, structure, and risk mitigation in the initial phase of fund development.

How We Helped

We have taken a systematic and functional methodology of pre-establishing fund consultation according to the investment approach of the client, the target investor group, and growth objectives.

We started by having a review of the strategic fund concept. We collaborated with the management to get to know the planned investment plan, assets of interest, investor profiles, fund economics and the expected fund raising strategy. This was the basis of any further advisory work.

After that, we performed a fund structuring analysis, comparing the potential fund vehicles and jurisdictions based on regulatory analysis, tax efficiency, fund preference of investors and operational factors. The evaluation also brought trade-offs between the various structural options and assisted the management to identify the best paths.

The engagement included regulatory planning as part of it. We advised on licensing issues of fund managers, regulation limits and the timeframes of approval, and advised the team on the nature of regulatory requirements in relation to the proposed fund structure.

And we also backed up early governance and operating model design. This involved recommendation on decision-making models, valuation and risk management values, conflict resolution and internal controls that suit an emerging fund platform.

In order to deal with operational preparedness, we designed a high-level service provider model. This assisted the management in knowing how administrators, custodians, auditors, and legal advisors work together and how they interact in a regulated fund environment.

Lastly, we summarized our analysis into a pre-set up roadmap. The following roadmap contained major decisions, activity sequencing, regulatory milestones and dependencies that enabled the management to have a clear plan on how the process of moving towards concept to fund launch should be done.

During the engagement, we paid close attention to translating technical and regulatory considerations into practical, decision-oriented knowledge, enabling management to proceed with confidence and Achieve Professional Project Finance Competence.

Value Delivered

This case study shows that Pre-Setup Fund Advisory Services can be used to bring a lot of value even at the initial stages of the fund development.

Through organized pre-establishment planning, the investment team could clarify the strategy, minimize regulatory and execution risk and match trade goals with feasible implementation decisions. There was also internal alignment and increased investor engagement preparedness in the advisory process.

The advisory system laid down in advance by this engagement was a sound base upon which subsequent effective fund establishment, regulatory effort and long-term scalability could be based.