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The five main steps to fund creation in Europe

The five main steps to fund creation in Europe

11 March, 2024
Europe Funds Fund Administration Fund Accounting AIFM Depositary Services Company Secretarial (CoSec) Investor Services Private Equity Real Estate Venture Capital Listed Funds Private Debt Infrastructure ESG reporting

You’ve made the decision to set up a fund in Europe, and in consultation with legal and tax advisors have decided on a domicile and structure that meets your needs. The big question is, what next?

To some extent, that depends on the type of fund you want to launch. The options we’ve discussed in this guide will have impacts on the fund creation process. For example, some vehicles require authorisation from the local financial authority, and some don’t.

The five main steps to fund creation in Europe

The five key steps to setting up a fund are relevant across jurisdictions:

1. Attract investors

Pre-marketing – testing the waters and gauging interest in your fund and strategy – is not a free-for-all in Europe, and is limited by rules set out in the Cross-Border Fund Distribution Directive (CBFD) and in European Securities and Markets Authority (ESMA) guidelines. In particular, ESMA sets out expectations for the content of your pre-marketing materials, including teasers, presentations and pitchbooks.

Once you have a strategy, structure and domicile, you can start marketing your fund to potential investors. Again, marketing needs to be approached with care, because European rules around raising capital are strictly enforced.

Whether you’re planning on using the marketing passport, NPPR or reverse solicitation, marketing in Europe is complex, and you need a good understanding of EU-wide regulations, plus local nuances, to do it in a compliant way.

2. Satisfy substance requirements

Managers who want the advantages of setting up funds in the EU are expected to show “substance”. The rules may tighten further, but at the moment AIFMs are expected to employ at least two full time employees in the country where the fund is domiciled, and ideally at least five to fulfil all responsibilities, in addition to complying with rules on regulatory capital, staff remuneration and other complexities. In this area, as in others, some jurisdictions add their own rules to EU baseline requirements. This is why asset managers from overseas usually revert to the services of an established third-party AIFM rather than setting up their own shop in Europe.

3. Ensure regulatory compliance

To ensure compliance throughout the lifecycle of the fund, fund managers need to understand the EU regulatory landscape before a fund becomes operational. They should also put processes in place to spot upcoming regulatory changes – or ensure that their local third-party AIFM is providing them with regulate updates in this area.

4. Review operational model

Fund management is complex, especially with cross-border operations. Aligning European and US/Cayman Islands structures can create operational efficiency in administration and management activities.

5. Build an advisor ecosystem

Launching an alternative investment fund in the EU requires a network of specialist advisors. Some of those are statutory requirements; some are simply best practice. We’ll go into what that network should include in the next section.

How long does it take and how much does it cost to set up a fund?

In general, it is more expensive to establish funds in Ireland and Luxembourg than in the Channel Islands, though precise costs – and timescales – will depend on the fund vehicle and regulatory regime. Overall, managers might expect to launch a fund in two to four months, though for some of the most complex structures the timeline can be considerably longer.

Ocorian Fund Services

At Ocorian we have extensive experience supporting US fund managers with setting up alternative investment funds in Europe and administering them throughout their lifecycle.

We have teams across seven jurisdictions in Europe that provide a high touch, technology first approach combined with local expertise.

We offer a full service offering from fund set up and administration through to fund accounting, AIFM, investor services and depositary.

  • Fast and efficient set up of funds in Europe
  • Teams based in the UK, Jersey, Guernsey, Ireland, The Netherlands and Luxembourg
  • AIFM in Ireland and Luxembourg
  • Expertise in administering vehicles parallel to existing US or Cayman structures
  • Jurisdiction agnostic
  • Full service provider

Our business development team in the US will be happy to discuss your European requirements and guide you through the process. Contact us for more information.

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