Why set up a fund?

How to set up a fund, and whether you should

A fund lets you pool money from several investors on one set of terms, with independent oversight and a structure investors recognise. Setting one up comes down to five decisions made in the right order: structure, jurisdiction, providers, governance and documents.

Financial chart lines over city office towers

When a fund makes sense

  • You are raising from several investors who will all invest on the same terms.
  • Your investors expect an administered and audited vehicle with independent oversight.
  • You want a track record in a recognised structure that a second, larger fund can build on.
  • You want your fees, carried interest and investor rights set out once, in one set of documents.

When a lighter route may be better

  • One investor or a handful of co-investors in a single deal can often use a special purpose vehicle or a club deal.
  • A small first raise, or a strategy you want to test, can sit in a cell of an existing protected cell company instead of a standalone fund.
  • A single institutional investor may prefer a separately managed account.

We will tell you honestly if a full fund is more than you need yet.

How to set up a fund in five steps

Most first launches that go wrong do so because the manager underestimated the time, cost or coordination needed, not because the investment idea was weak. Taking the decisions in this order avoids most expensive false starts.

  1. Define the structure

    Decide who is investing, how much and on what terms. Open or closed-ended, a limited partnership or a company, a standalone fund or a cell in a protected cell company. The structure drives everything that follows.

  2. Choose the jurisdiction

    Luxembourg, Ireland, the Cayman Islands, the Channel Islands, the UK, Delaware and Singapore each suit different investors, sizes and budgets. Your investors and your plans for a second fund usually decide it. Compare the three.

  3. Appoint service providers

    A first fund needs an administrator, and usually lawyers, an auditor and a bank. Some need a regulated manager, a depositary or compliance support as well. Appointing the administrator early keeps the rest on time. Who you need and when.

  4. Set up governance and the regulatory route

    Most offshore funds need a board with independent directors, and a regulatory route that matches the fund and its investors. Independent fund directors.

  5. Documents, launch and investor onboarding

    With the structure agreed and providers in place, the lawyers finish the fund documents, bank accounts are opened, investors are checked and onboarded, and the fund can take its first money.

Questions first-time managers ask us

How long does it take to set up a fund?
A standalone fund usually takes several months, mostly for documents, provider onboarding and bank accounts. A cell in an existing protected cell company is usually quicker, because the company, its board and its providers already exist. The regulatory step itself can be quick: a Guernsey Private Investment Fund is registered within one business day of a complete application and a Jersey Private Fund can be authorised within 48 hours.
How much does it cost to set up a fund?
For example, a basic closed-ended fund of £20m (about US$27m or €24m) domiciled in Guernsey costs about £84k (US$112k or €100k) in its first year, including about £17,600 of setup costs, and about £66k (US$89k or €79k) a year after that. Add about £20,000 a year if you need a second independent director. Funds sharing a protected cell company cost less each. See fund setup costs.
Do I need to be regulated to run a fund?
It depends where the fund and the manager are based and who the investors are. Some jurisdictions license the manager alongside the fund, as the Guernsey Private Investment Fund can. Others, such as Luxembourg and Ireland, need an authorised alternative investment fund manager, and in the UK a manager usually needs FCA authorisation or registration or uses a third-party host manager. We explain the options and your lawyers confirm what applies to you.
Should I start with a protected cell instead of my own fund?
A cell in an existing protected cell company can be a cheaper and faster way to launch a small first fund or test a strategy, because the company, its board and its providers already exist. The trade-off is less control and less of your own brand. We can tell you whether it suits your raise.

Talk through your fund idea with us

Tell us what you are planning and we will help you work out the right structure and the order to do things in. It is free.

Book a free consultation