HOW TO CHOOSE THE BEST OPTION FOR ESTABLISHING AN INVESTMENT FUND?
If you are interested in establishing an investment fund and want to choose the best option for its registration, then this article will be useful for you. We will consider what should be guided when choosing the type of investment fund and country for its registration, what key points you should pay attention to and important aspects in choosing the type of investment fund.
Who needs an investment fund?
An investment fund is a reliable and profitable tool for investment. Its main goal is to consolidate the capital of individual investors into a single pool for further investment and growth under the management of a professional investment manager (Management Company).
The term “investment fund” often means not only licensed investment funds, but also certain types of legal entities (for example, holding companies, certain types of trusts). To choose the most suitable option, you need to carefully analyze the essence of the proposed activity of the investment fund.
You should note that in many offshore jurisdictions licenses are not required for certain types of investment funds. For example, the Cayman Islands do not require a license for closed-end investment funds. It is also worth considering that for investing private capital without attracting third parties, a license is usually not required either, which allows us to limit ourselves to the creation of an ordinary holding company.
As an intermediate link between an ordinary holding company and a licensed investment fund, you can consider creating a private investment fund or trust, especially if you plan to invest your family capital, rather than attract the general public to collect investments.
You should consider that a trust is a rather complicated legal structure in which the trustee has the right to dispose of the trust property only in the interests of the founder or the persons indicated by him (the beneficiaries). Moreover, the trust does not form a legal entity and in many cases may not disclose the names of its beneficiaries. A private foundation can be viewed as an analogue of a trust that operates in countries with a continental rather than an Anglo-Saxon legal system. The fund by its legal nature is a legal entity, and the property transferred to the disposal of such a fund, and its income, enjoy preferential taxation and a significant degree of protection from sanctions by the state and other entities.
If you are planning to actively involve third-party funds in the management, then you should think about a licensed investment fund. You can obtain a license in the relevant authority of the country of registration of the fund (in Cyprus it is the Securities and Stock Market Commission, in Luxembourg - the Committee on Financial Supervision, in Malta - the Maltese Financial Services Authority)
The budget for establishing of an investment fund
When establishing an investment fund, the choice is often determined by the budget. Opening an investment fund in Europe will cost significantly more than in offshore jurisdiction.
You should note that for the most regulated funds working with unqualified investors, a full set of functionaries is needed, and their maintenance can significantly increase the fund's annual expenses. At the same time, some offshore investment funds, especially those working with professional or qualified investors, may refuse the services of some functionaries, which make their maintenance much cheaper.
Management company and investment fund - what you need to know
Unfortunately, when establishing an investment fund, it is often forgotten that the management company and the investment fund are totally different concepts.
Establishing your own management company is a separate project, comparable in complexity to the establishing of the fund itself. The management company carries out trust management of the investment fund, by performing any de jure or de facto actions with respect to the property, and also implements all the rights certified by the securities, including the right to vote on voting securities.
In some cases, you can establish a management company without a license, but such cases are allowed only for certain types of offshore funds.
It is also necessary to mention the possibility of creating a self-managed fund (without an external management company), but such structures are not suitable for all classic projects in the field of investment funds.
Offshore or European fund - how to choose?
If you want to have a good reputation and work with the EU market, then we recommend you to register the fund in the European jurisdiction. A bonus when registering an investment fund in the EU is the possibility of its “certification” within the EU, which will open up opportunities for such investment funds to conduct activities (including marketing) within the EU, and not just the country of its registration.
If you do not want to spend a large budget on the registration of an investment fund in Europe, then we recommend you to think about registering an investment fund in an offshore jurisdiction. Choosing this option, you will also be able to work with the EU market, but observing serious marketing restrictions - it will be possible to offer investment only through a private offer.
You should also note that with the use of offshore jurisdictions, tax costs and expenses for the maintenance of an investment fund are optimized to the maximum. In addition, such investment funds are much less likely to be checked, riskier strategies are available to them, and there are practically no restrictions on investment.
Thus, if you want to ensure effective management of your assets, their safety, capital increase, as well as raising capital from third parties, then you should think about establishing an investment fund.
Based on your goals and budget, SBSB experts will help you find the best option for establishing your investment fund.