One of our core advisory services is structuring investment funds for clients. Thankfully, there are not many structures that we have not come across.  From collective investment schemes to unit trusts. From limited partnerships to open ended investment companies.  I could go on but you get the point. There is no end of investment fund structures to choose from and I haven't even mentioned the offshore variations. 

So what structure is the right one? Simple answer.  The one that has the greatest possibility of being funded. It is obvious to state that structuring a fund that has a limited possibility of receiving investors money is a waste of time.  But you would be surprised how many investment managers get caught up in the mechanics of the fund structure. The different tax structures, offshore versus onshore is obviously important. But the starting point is always to ask the one key question - where is the money coming from? Answer this and you have the fund structure.

Let me give you an example.  We recently advised on the structure of a proposed property fund which seeks to develop residential property in the UK. So where is the money coming from? The answer we got was off shore bond monies. So that is the place to start.  In this example, an off shore unit trust, such as a Guernsey or Jersey regulated expert unit trust is most appropriate.  The money comes into the unit trust and then invests in the UK land. 

It is very easy to over engineer the process and design complicated structures, with numerous feeder funds. Try to avoid this if possible. More feeder funds and complicated structures are not necessarily better.  It does not always mean more investment monies will be received.

Unfortunately when you talk with the promoters of investment funds they will tell you it has to  be all things to all people - for example - be offshore, but have a UK feeder fund.  The danger with this is that the fund structure can all get very complicated and therefore expensive very quickly, perhaps with no real benefit.

It is without doubt getting harder and harder to launch investment funds, not because of the FSA putting the brakes on the unregulated collective investment schemes and the introduction of RDR, but perhaps more because investors' appetite for risk is at an all time low.  It's a pity really as there are numerous good opportunities in the investment market, especially in the property sector. An investment fund which provides the investor economies of scale and diversification should be at least considered as part of a diversified investment portfolio.

So next time you are thinking of how to structure an investment fund, think of the obvious first by finding out where the money is coming from.  Then structure the investment fund accordingly. 

If you need help to structure an investment fund - please contact us.