The Key Role Early-Stage Planning Plays in Fund Management

The problem explanation

Effective early-phase design and planning are crucial for the success of an investment fund. The structural elements of the investment fund must match the intended investment strategy specified in the fund’s prospectus. Planning and regulatory compliance also help to focus the fundraising team so that effort and cost are not expended inappropriately.

Definitions used in this article

The issues that the fundraising team should consider during its early-stage planning

There are several factors that the fundraising team should consider and address during its initial planning. Doing so will help to ensure that the GP will be able to keep its promises to investors and operate the fund with due skill, care, and diligence.

• Fundraising timing including reviewing any restrictions from existing funds or contracts on raising new money, and the availability of the GP’s human and financial resources to market and raise the fund;
• Fundraising budget and costs including consideration of the costs of the fundraising such as legal and regulatory charges, travel and placement adviser costs, and the apportionment of these costs between the fund and the GP;
• Investment strategy, including the fund’s investment policy and objectives as well as any specific requirements coming from that strategy such as fund size or geographic scope.
• Resources for implementing the strategy, including identifying the human resources that will be needed to implement the fund’s objectives and responsibly manage and administer the fund and the GP’s activities while ensuring such individuals are likely to remain committed to the fund for its duration.
• Fund structure, including form and jurisdiction as well as key structural terms such as the length of the investment period and term of the fund, minimum and maximum fund sizes, and deal flow allocation between other funds managed by the GP.
• Fund economics including the level of management fees, the provisions regarding the transaction, advisory or other costs to be incurred by the fund or the GP, and the appropriate profit share and carried interest structure, in particular focusing on the apportionment of carried interest, timing of payments and GP clawback mechanisms.
• Marketing strategy, including what type of LPs will be targeted for the fund and the resulting regulatory requirements for marketing, the structural impact on the fund, and other specific requirements of the targeted group (such as environmental, social, and governance (“ESG”) or other reporting needs).
• Responsible investment considerations including their incorporation into the GP’s organisation and its investment and portfolio monitoring processes and policies.

Fund legal requirements and LEI

One of the impacts of the AIFMD is more specific registration and marketing requirements for affected funds and managers. It is important to note that, in some jurisdictions, the GP and/or fund need to be legally established as a prerequisite for starting the registration and authorization process by the regulatory authorities and hence the marketing of the fund.

It is the responsibility of the GP to make sure that the fundraising team complies with the applicable regulations for marketing the fund, and should seek appropriate assurances from third parties (particularly placement advisers) that they will comply with all applicable fund marketing regulations.

From January 3rd, 2018 all legal entities (regardless of where the legal entity is incorporated, or geographically located), investment funds, and structures involved in buying, selling, or issuing financial instruments on EU-regulated markets are responsible and required to obtain and maintain a Legal Entity Identifier (LEI).

How an LEI can help Fund Managers?

The Legal Entity Identifier LEI is a globally recognized alphanumeric code designed to improve financial system transparency and risk management. It plays a crucial role in identifying legal entities involved in financial transactions and, indirectly, in revealing beneficial ownership.

LEIs contribute to financial transparency, helping regulators and organizations gain insights into beneficial ownership structures and detect potential financial misconduct.

Comprehensive due diligence and compliance efforts may involve additional sources of information, such as corporate registers, beneficial ownership registers, and customer-provided documentation. That’s why, at LEIpapa we are building the biggest and the most relevant registry containing all the data necessary for the development of business transactions between financial market participants and other legal entities.

FAQ

LEIpapa: Your Trusted Partner in LEI Registration

At LEIpapa, we understand the importance of a Legal Entity Identifier (LEI) in today’s interconnected global economy, and we’re committed to making your registration process as smooth and hassle-free as possible. Visit LEIpapa web app or contact us to start your LEI registration today.

Feature photo by August de Richelieu.