Marketing and Distribution

The ideal investor will be there for the long term, will understand the business and risk profile of the fund and will have the flexibility to sustain bear periods. This is more likely to be an institutional or corporate investors rather than an individual, although high net worth individuals will also fit the profile. It is unlikely that an “emerging” manager will be seeking to target retail investors; to do so would complicate things from both a regulatory and an administrative point of view.

All of this takes time and costs money and the manager may, therefore, decide instead to appoint a third party distributor to market the fund. There are a number of distributors who specialise in marketing and some of them also offer support services to “emerging” managers – such as providing serviced offices and advice on fund structuring. The appointment of a “big name” distributor obviously increases the likelihood of attracting larger amounts into the fund. However, this has to be balanced against the commissions which may be charged.

Regulatory Issues

On the understanding that the manager will be selling only to professional investors, then the restrictions on marketing in most countries will be considerably less than those which apply to retail funds.

Other marketing considerations

If the manager is preparing marketing material in relation to the fund, it needs to ensure that the contents comply not only with other jurisdictions but also with its authorisation as an investment manager. If details of the managers track record are included, the information must be verifiable and in relation to the same investment strategy as will be used in the fund. The manager will also need to cover the tax treatment of investors in the different jurisdictions. For example, for UK investors it may be desirable to obtain distributor status for the Fund so that any gains can be taxed as capital gains rather than as income.

FSA authorised UK based managers selling into Europe, have a passport, by virtue of the European Union Investment Services Directive, to carry out investment management activities throughout the European Union. This does not mean, however, that the fund can be marketed in Europe without compliance with the individual marketing rules of each country.