What are the key steps for setting up an alternative investment fund in Europe?
Crossing the Atlantic and setting up an alternative investment fund in Europe for the first time can be a challenging process for a US manager. We recently interviewed Paul Spendiff on the considerations of internal and external stakeholders, as well as regulatory and tax implications when setting up a fund in Europe.
In summary, there are four key steps when establishing an alternative investment fund in Europe:
1. Select the right fund domicile for your fund
The first stage is to identify a suitable jurisdiction. Typical popular locations include Ireland, Luxembourg, Jersey, Guernsey and the UK. However, the decision will vary greatly dependent on what you are looking to achieve.
A jurisdiction-agnostic adviser that operates in multiple domiciles can help here, because they understand the type of clients they see succeeding in each region – with no vested interest in which jurisdiction you eventually pick.
At Ocorian we are jurisdiction agnostic and have teams based in all the key European fund centres to assist.
2. Establish a suitable fund structure
Simply copying a structure that you’ve seen succeed for other US fund managers is not a good idea. Speaking to local fund lawyers and tax advisers will help inform what structure you want, and the strategy you should take, to suit your specific situation. The European fund will typically need to operate alongside a Cayman or Delaware structure so it is important to think how this will operate both structurally and operationally.
Ocorian will then work with you to take the lead on establishing your fund structure in the jurisdiction of your choice, making sure it is compliant with all applicable regulations.
3. Attract investors to your fund
As explored in this article on Marketing your fund in Europe, you must ensure that you understand and comply with applicable regulations in each jurisdiction.
At Ocorian we have extensive experience on ensuring US managers comply with applicable marketing regulations in each jurisdiction.
4. Stay compliant with EU regulations
The European regulatory landscape is perceived to be complex and a highly regulated market that is changing all the time . Whilst there is some homogeneity, it is important to be aware that European rules can often be implemented differently within each country.
For example, While the relatively new Cross Border Fund Directive (CBFD) doesn’t generally apply to non-EU AIFMs, for example, it does in the Netherlands and Germany. Understand this up front, to make sure that you don't inadvertently start a clock ticking that will cause you problems down the line. If you decide that you're going to go into a market like Germany and try to raise a fund on a pre-marketing basis, it’s important to exercise caution.
Ocorian has over 400 fund services experts including compliance teams in each location to ensure that our clients are complying with local rules.
Who should I engage externally when setting up a fund in Europe?
When setting up an alternative investment fund in Europe, it is important to engage external stakeholders who can provide legal and regulatory advice. This may include a funds partner, regulatory council, and tax advisors.
It is also important to engage service providers who can provide support for areas such as fund accounting and reporting. You will typically need a:
The alternative investment fund manager will oversee portfolio management and risk management. A good third party AIFM will take away the financial, operational and regulatory burden away from the US manager whilst delegating back to them the all important investment management activity.
Within the EU, most funds require the appointment of a regulated third party fund administrator to take care of the set up and launch of the fund and provide a full suite of administration services throughout the fund’s lifecycle. This includes services such as bank and cash management, client on-boarding and due diligence and tax filings and returns.
You will need to appoint a depositary to safekeep the fund’s assets, perform oversight duties and monitor the fund’s cash flow.
You may also require additional services such as SPV administration for GPs, carry, holdco and cidco vehicles or investor reporting for CRS and FATCA.
At Ocorian, we can provide all of these services for your fund or you can select the services you need on a modular basis.
What should I consider when engaging external stakeholders for fund setup in Europe?
When engaging external stakeholders for fund setup in Europe, it is important to consider the specific needs and preferences of the investors who will be investing in the fund.
Fundraising involves a lot of external partnerships – with the AIFM, for example, the fund administration partner and the depository. If all goes well, these relationships will last the life of the fund and beyond which can be in excess of 10 years so you need to choose wisely. Start with proper due diligence, and ensure all parties understand your strategy.
Regulatory and tax considerations will also play a role in determining where the fund should be set up. It is important to work with stakeholders who have experience in the relevant jurisdictions and can provide the necessary guidance and support.
Who should I involve internally when setting up a fund in Europe?
When setting up an alternative investment fund in Europe, it is important to involve internal stakeholders who will be responsible for different aspects of the process. This may include individuals from the investor relations team, legal team, fund operations team, and tax counsel. It is important to identify who will be involved in the project and ensure that everyone is clear on their roles and responsibilities.
What are some key considerations when setting up a fund in Europe?
When setting up a fund in Europe, there are several key considerations to keep in mind. These include the regulatory and tax implications of the chosen jurisdiction, the specific needs and preferences of investors, and the involvement of internal and external stakeholders. It is important to work with experienced professionals who can provide guidance and support throughout the setup process.
How can Ocorian help with setting up an alternative investment fund in Europe?
Ocorian are adept at supporting US fund managers setting up and establishing funds in Europe. We have teams across all the key fund jurisdictions including UK, Jersey, Guernsey, Ireland and Luxembourg.
Our business development team based in New York will be happy to guide you through the process.