You’re bound to have some questions – we hope that we manage to answer them below. To make it easier to navigate we have broken these ‘Q&As’ down into five sections:
- Getting Authorisation;
- Investment Committee;
- Investment Process;
- Your Investors;
- Working with the Fund Incubator.
How long does it take for a new firm to get authorised by the FCA?
The FCA have up to 6 months to process any application for authorisation – and they are taking all of this time. We were recently told that they would not assign any new applications to a case officer for about four and a half months after the application was received!
I want to sit on the Investment Committee. Can I and how long does it take me to get FCA approval?
We believe that it is vitally important that you and your team play a leading role on the investment committee – your investors are after all backing your judgement and track record. Provided that your application is a straight forward one we would expect it to take about 3 weeks. The FCA ask detailed questions about your past and it may take longer if you have had eg a County Court judgement registered against you, been involved in litigation, been arrested for an offence, been a director of companies that have gone into liquidation or who have themselves been the subject of litigation. The FCA will want to fully understand what went on.
What forms do I have to fill in?
We will make the application via the FCA’s on-line system ‘Connect’. We will ask you to complete their ‘Form A’ so that we have all the necessary details. We will want a CV and a list of all your directorships over the last 10 years – both current and past, UK and overseas. As we note above, the FCA asks detailed questions about your past and if you have had a County Court judgement registered against you, been involved in litigation, been arrested for an offence, been a director of companies that have gone into liquidation or who have themselves been the subject of litigation, the FCA will want to fully understand what went on.
Do I need to pass any exams?
The FCA do not require you to have passed any exams but will not grant approval to anyone who we cannot demonstrate is competent to sit on an investment committee. This could be done by showing a track record within the investment industry at a senior level.
I’ve been registered with the FCA in the past – do I still need to fill in the forms?
Yes – I’m afraid so.
Is there any CPD requirement?
There is no formal CPD requirement but the FCA do expect you to take steps to remain up to date. You could do this by attending lawyers and accountant’s seminar or going on courses from providers such as Private Equity International.
Who signs documents eg confidentiality letters and investment agreements?
That will depend upon the document. Confidentiality and engagement letters would usually be signed by us. Shareholder Agreements and investment documents will probably be signed by the GP or the Fund.
Who manages an investment once it is made?
You will – you will have built up a relationship with the portfolio company management team and a deep knowledge of the business and its business plan.
Who votes at shareholders’ meetings?
The registered owner of the shares – usually the Fund or its GP.
Who sits on the board of portfolio companies?
One of your Investment Team.
Valuations – who will undertake valuations of portfolio companies?
We would expect to agree a valuations template and process with you and for the Investment Team to prepare the necessary reports and valuations for approval by the interim fund manager. Many funds appoint a fund administrator to collate and send out the reports.
Who holds the Share Certificates for portfolio companies?
We would expect that share and other certificates are held in the name of the Fund or its GP. This increases your control.
We can introduce you to custodians if you wish.
Who can invest in a limited partnership fund?
There are restrictions on who you can market a limited partnership based private equity fund to. Institutional investors eg large corporations and pension funds are permitted but High Net Worth and individual investors require special consideration before they can be sent an information memorandum and/or admitted to a fund.
Will you want to manage or control the relationship with our investors?
No –but we will expect to be kept informed of material events.
Reports to investors – Who will prepare and send reports required by the LPA?
We would expect to agree a template for such reports with you and for the Investment Team to prepare the necessary reports. Many funds appoint a fund administrator to collate and send out the reports. Because they deal with such reports on a regular basis they are set up to produce and distribute them.
Where will investors’ money be held?
The investors’ money will be held in a dedicated bank account in the name of the fund and owned by the fund. In order to complete transactions, we will either need access to the account or to develop a close relationship with your fund administrator.
What KYC do you need to undertake on the Fund, its investors and the Investment team?
Each case is likely to be different but in summary we need to comply with the terms of the Money Laundering Regulations and the FCA’s own rules and so we will need to Identify and Verify the identity of:
- Your fund management company;
- The fund itself;
- The investors in the fund;
- The Investment Team.
We will ask for certified copies of passports and a recent utility bill for each senior member of the Investment Team and each individual (human) investor and for certified copies of the constitutional documents of any company or corporation together with a list of its directors and shareholders.
We would be happy to discuss this with you further. There are exemptions and thresholds which may make the process simpler.
Working with the Fund Incubator
When should I sign an Interim Management Agreement with The Fund Incubator?
If you wish us to oversee the marketing of your fund then we would expect to sign an agreement before the marketing starts and to have an input into the drafting of that marketing material.
If we are only to provide an investment management service then we would anticipate signing an agreement immediately before first closing.
Who will be my contact at The Fund Incubator?
We will agree with you a ‘Lead Partner’ to be responsible for ensuring that we are meeting your expectations and delivering on our promises. This Lead Partner will be one of the Managing Partners. They will be supported by one of the other Partners. Should you wish to complain about or replace this Lead Partner then our other Managing Partner will take over the management of the relationship.
Is there a Service Level Agreement?
We are happy to discuss creating an SLA and identifying key performance indicators.
How do we share information effectively?
The Fund Incubator is willing to work with any reasonable information sharing processes such as cloud based storage and we anticipate sharing documents via this or similar systems. You will have email details for all the Managing Partners at The Fund Incubator and we would expect to agree with you a programme of regular ‘update’ meetings.
How do we terminate the interim management agreement?
The management agreement between The Fund Incubator and the fund can be terminated at 3 months’ written notice. It will terminate automatically when you become FCA authorised.
What happens to all the investment records when we terminate the interim management agreement?
We will retain a soft copy of the documents and pass the originals over to you.
How can I confirm that you are authorised to manage our fund?
The FCA’s website contains a list of all regulated firms in its fully searchable Financial Services Register page – our registered number is 208716.
Are you subject to the AIFMD?
No – because we manage less than €500m we are not subject to the full scope of the AIFMD. We are deemed a Small AIFMD.
Are you subject to MiFID or MiFID II
No – funds organised as limited partnerships are specifically excluded from MiFID and MiFID II.
Should I appoint a fund administrator?
That is a question you should discuss with your investors. Many funds are appointing an independent fund administrator to help cope with the increasing complexity of the fund management process, to hold share certificates, to manage the sending of reports and drawdown notices to investors and to undertake reconciliations and monitor bank accounts. Some aspects of fund management eg the US FATCA rules are highly complex and selecting a fund administrator who is used to dealing with them can save a lot of time.