How to Create an Investment Fund

Due to the high cost of maintenance, investment funds have traditionally only been for those companies or individuals with large assets. Small- and medium-sized funds were rare because of the cost of maintaining them. However, with the advent of investment fund suppliers specifically targeting small- and medium-sized funds it is possible for anyone to start a fund. This article will take you through the structure of a fund, its management, operations and governance. It will also help with client segmentation and building client relationships.

How to Build an Investment Fund

Step 1

Choose a fund structure. Different structures have varying legal and tax implications. Some funds are established as operating companies while others are set up as trusts. Consult your tax and legal advisory for the appropriate strategy in your local jurisdiction.

Step 2

Decide on the source of money management. Some firms operate from internal management only, that is they rely on their own asset managers for money management. Others choose to consult external money managers, specifically those in specialized areas. It is also possible to maintain a mix of both internal and external fund managers.

Step 3

Hire an auditor, legal counsel and custodian. A custodian will coordinate primarily with the fund accountant and bookkeeper. Legal counsel should specialize in securities law and your auditor should have experience within the investment fund industry. Audits should be conducted on a regular basis.

Step 4

Tailor your fund offering to your clientele. While a fund is traditionally pooled together you can create different classes that meet the specific needs of your clients with small investments and those with large investments. Differentiate the two by pricing.

Step 5

The best way to win over and build client relationships is to keep your management expense ratios low; 2.5% is average. As a new fund you can boast more efficient operations and a commitment to lower cost of ownership by keeping your ratio below average, at least until you have established your firm's brand.


This is not to be construed as legal, investment or tax advice.

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