How to Start an Alternative Investment Fund. Part 1 By Rosamond Stenhouse

Please note that I am not a financial advisor, I am an entrepreneur who has built, with a co-founder, a 100 million fund in the past showing a net of 17% per annum to investors. ?During a recent conversation with a global business owner, it reminded me if you aren’t from the investment world, it’s an absolute minefield.

Education is your greatest weapon, don’t be na?ve. This is for Alternative Funds but it’s a place to start.

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Choosing the right regulator depends on your fund’s structure, target market, and jurisdiction but as important is flexibility, the ability for global money to arrive in your fund unrestricted.

?Here are some regulators that are well-suited for overseeing niche investment funds:

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FCA (Financial Conduct Authority) UK

?? - The FCA is a respected regulator, particularly strong in overseeing alternative investment funds (AIFs)

?? - It is known for its transparency and rigorous compliance requirements, making it ideal for a fund targeting UK and European investors.

However, it’s easy to get on the wrong side of the FCA aside from the fact they are limiting for global access. If a recession, war or a global crisis hits, you may need to find investors far from your original target countries, agility and flexibility are very important in today’s volatile world.

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CSSF (Commission de Surveillance du Secteur Financier) - Luxembourg

? Luxembourg is a global hub for investment funds, and the CSSF regulates all types of funds, including those focused on niche sectors like sports.

?The flexibility offered through structures like UCITS and Specialized Investment Funds (SIFs) makes it a strong choice for alternative investments.

Remember, you are not necessarily raising money from where you put your fund; you are simply finding a reputable hub that investors know is politically sound, structurally versatile, and pro-business, not strangulating regulation.

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Brexit, Luxembourg & UK

The UK market can still invest since Brexit. Luxembourg still allows many UK investments through the old “passporting” system without hefty regulatory hurdles. You may just require extra documentation or declarations from UK investors. However, the UK may impose taxes on returns depending on the structure and type of return (e.g., capital gain or dividends)

Luxembourg does have several tax treaties in place, but the UK investor, as with any investment, will seek tax advice prior to saying “yes” to your offering. My point is understanding what investors face before pressing go on fundraising allows, informed targeting to avoid wasted costs.

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?SEC (Securities and Exchange Commission) - USA

?? - If the investment fund is aimed at U.S. investors, the SEC would regulate it. For funds focused on U.S. sports or targeting a U.S. audience, registering with the SEC ensures compliance with U.S. securities laws.

?? - The SEC also has experience regulating funds that focus on alternative assets, including sports-related ventures.

Good for US

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?CIMA (Cayman Islands Monetary Authority)

For an offshore structure, particularly one that aims to attract international investors, the Cayman Islands is a popular jurisdiction. CIMA regulates many hedge funds and alternative investments, offering lighter-touch regulation but maintaining international standards.

This is ideal for fund managers seeking flexibility in their fund structures while ensuring credibility and investor protection.

Unfortunately, some Investors are nervous about the Cayman Islands as it hasn’t always been squeaky clean. Conclusion: Some investors will be put off, likely pension funds and sovereign wealth funds.

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?BaFin (Federal Financial Supervisory Authority) - Germany

?? BaFin s Germany’s regulator and is known for its high standards, especially for alternative investment funds. It’s a good choice if the fund will be targeting German or European investors, given the access to the EU market.

See Luxembourg in regards to UK investors and Brexit

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?MAS (Monetary Authority of Singapore) – Singapore

f your investment fund is targeting Asian markets, MAS is a reputable regulator known for its strong governance and support of alternative investments.

?? - Singapore is emerging as a key financial hub for alternative investments, including those focused on niche markets like sports.

Limiting

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?Factors to Consider:

?The jurisdiction of Investors if your target investors are primarily in Europe, regulators like the FCA or CSSF, however, we found the CSSF has better reach. For U.S. investors, the SEC is best.

Fund Structure Offshore jurisdictions like the Cayman Islands offer flexibility for hedge funds or private equity funds investing in alternatives.

Regulatory Burden Some regulators, like CIMA, offer a more streamlined process, while others, like the SEC or FCA, have stricter compliance rules.

Don’t blindly believe the advice you are given, like many industries the finance industry is full of sharks. Educate yourself, research everything you can, double-check everything you are told.

?At the end of the day: Choosing the right regulator depends on your investment strategy, target investor base, risk tolerance, tax and reputation.

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Distribution

We took ours in-house, a decision based on market conditions. ?Be very careful of large, impressive companies wanting a retainer. Frankly, If they are able to do the job, they won’t need anything more than expenses covered. I know too many business owners burnt by retainer seeking big names.

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