How do I start an investment fund?
If you have ever wanted to break into the world of funds, you’ve come to the right place to find out how to start an investment fund from scratch!
It doesn’t matter what type of fund you want to start, be it a real estate property fund, hedge fund, private equity fund or a crypto fund; the fundamentals of putting one together is always the same.
If you have ever searched on Google ‘How do I start an investment fund’, you will be confronted with numerous results, all citing the technical ways of establishing a fund.
The steps required to start a fund are prescribed by the Australian Securities & Investment Commission (ASIC), who will determine your ability to hold an Australian Financial Service Licence (AFSL) to operate a fund.
We’ll get into the technical aspects of the fund set-up later, but for now, I want to share with you my Fund Launch Method that I have practised and used for over 20 years with my clients and in assisting them to achieve structured financial outcomes to meet their objectives.
What is the Fund Launch Method?
The Fund Launch Method is my 4-Step Fund Launch Blueprint that will enable you to start a fund from scratch before applying for an Australian Financial Services License.
Obtaining an ASF Licence is an expensive exercise, so why would you start there.
By following the 4-Step Fund Launch Blueprint, we get to work through the four steps to see if your opportunity or idea has merit.
We get to identify any issues and pitfalls through this process before you spend massive amounts of money in establishing a fund.
The traditional way of getting into the world of funds would see you spending a fortune in getting a degree and losing time building corporate portfolios to gain industry experience before you could go it alone.
The Fund Launch Method fast tracks this process, saving you time and money.
Step 1 – Find an Incredible Deal
The first step requires you to find an incredible deal that stacks up and has the potential to generate a profitable return.
Finding a deal is not hard but finding the right deal may take you longer to find.
That’s why it’s essential to continually be building relationships with prospects and generating leads for assessment.
You need to seek out opportunities until you find the deal that checks all the boxes.
If your anything like me, you will review 100’s of deals before finding the ‘ONE’.
The beauty of finding an incredible deal is, once you’ve seen it, you will be able to accelerate the growth of your fund fast.
Step 2 – Structure Your Deal
Deals come in all shapes and sizes, and not all deals are made the same!
Initially, a deal will look great on face value but may have some items to address.
Your job is to pull the deal apart and understand the opportunity intimately.
You’ll need to map out everything and structure a deal out of the data.
Your ability to raise money will hugely depend on how you package up the deal.
It’s essential to make it presentable so it’s easier to communicate to investors.
This step requires you to conduct your initial due diligence, crunching the numbers to see if the deal is viable and determine what special considerations are needed to fulfil the opportunity.
Structuring the deal also means conceptualising the company structure, identifying the team required to run and manage the opportunity, including everything in between.
You will also start putting together the framework of your agreements, your investment strategy, and memorandums, including term sheets.
The devil is in the detail; the more time you spend checking the details, and fine-tuning the documentation, the better prepared you will be.
Once your clear on the deal structure, it’s time to starting pitching!
Step 3 – Start Pitching Your Opportunity to Investors
I’ve spent the last 20 years pitching deals to financial institutions and investors.
So, I know firsthand what it takes to pitch a deal.
You see, most people who seek funding don’t know where to start. That’s because they lack strategy and have no game plan.
They seek out investment from family, friends, and foes, only to realise the funds raised doesn’t even pay for the legal fees.
You see, pitching doesn’t mean you’ll raise money.
Pitching allows you to present your deal.
The first thing is, you’ll need to find investors to pitch too. If you don’t have any investors, devise a plan to find them.
Once you’ve found the investors, start presenting your deal.
Your job is to be transparent with your presentation and to listen for feedback.
Check investor interest and appetite for that type of investment.
They may not be interested straight away, but they may be later.
If they like the deal and the terms are correct, they will invest with you.
And if they don’t like the opportunity, they may offer you some insightful information to adjust your deal.
However, if you fail to get investment, you may need to find another deal and repeat the process above.
If all goes to plan, then we go and lock in the deal with a legal document.
Step 4 – Package the Deal & Getting the Legal documents Done
Ok, so now you have a fantastic deal and investor commitments.
Now what, I hear you ask.
It is recommended that you engage a lawyer to assist you with formalising the legal agreements and requirements to meet ASIC requirements.
You’ll need to incorporate your company, perhaps apply for a license, create information memorandums, including the finalisation of any other agreement to pull your fund together.
The more time you spend on putting these documents together by yourself may save you money in fees.
Depending on the complexities of your fund, legal costs can exceed over $100,000.
Whilst you may get the fund to reimburse you for the money spent on legal fees, you still need to cover the costs upfront.
What are the requirements to start a fund?
Now, let’s cover the technical aspects of starting a fund.
Firstly, you need to establish whether you need an Australian Financial Service Licence or not?
To apply for an Australia Financial Services Licence, you must follow the prescribed requirements set out by the Australian Securities & Investment Commission (ASIC).
If you intend to use a fund structure:
- For a small scale offering where you are raising funds from a limited number of investors, you may not need a licence and may be able to start a fund under an exemption.
- For a more significant scale offering where you are raising money from an unlimited number of investors, potentially even retail investors, you will need a licence to run your fund.
ASIC refers to an investment fund as ‘Managed Funds’ or a ‘Managed Investment Schemes’ operated by a Fund Manager.
A Fund Manager is the – Responsible Entity.
To start a fund, the Fund Manager must:
- Be a registered Australian company
- Be applying for or hold an Australian Financial Services License (AFSL)
How to apply for your Australian Financial Service Licence (AFSL)?
The primary barrier standing between you and your investment fund is navigating the legal and regulatory requirements.
Whilst the Fund Launch Method will get you started, we recommend working with a lawyer to ensure you receive sound and practical advice before starting your fund journey.
Licence applications are completed online, using ASIC’s e-Licensing platform.
You’ll need to describe how your funds will be applied, what investment strategies you’re likely to adopted and what investment scheme you’re likely to run.
In addition, you are also required to provide documents to support your application, which are:
- Constitution
Which provides details of how you intend to run the fund. It should clearly state the rights, duties, and liabilities of the fund manager, including the rights of investors to withdraw from the fund and the process for winding up the fund if it comes to that
- Compliance Plan
The compliance plan identifies your policies and procedures to ensure that the fund operations are under national laws and regulations.
- Director’s statement
The director’s statement is a formal declaration by the director states that the contents of the constitution meet the requirements of the Corporations Act, and the compliance plan complies with the ASIC regulations.
Once completed the applications, you will be ready to submit them to ASIC for assessment.
The assessment process can take anywhere between (6) to (9) month to finalise approximately, at which point ASIC should issue you a draft Australian Financial Services License (AFSL).
Do you want to Create, Launch & Scale an Investment Fund? Book in a FREE session today, and let’s devise the perfect game plan for you!
Here is to your fund success!
Dolly Brtan
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DISCLAIMER: – All written content on this site is for educational and information purposes only. Opinions expressed herein are solely those of the author, unless otherwise specifically cited. All statements reflect the author’s judgment as of the publication date and are subject to change. The information contained herein does not include personalized investment advice, nor should it be construed as investment, legal, or tax advice. All ideas and information provided should be discussed with a professional advisor, certified accountant, or practicing lawyer before implementation. The ideas and information presented here is also not an offer to buy or sell securities nor a solicitation of any offers to buy or sell the securities mentioned herein.