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On June 29, 2016, a seminar called “Follow the Right Path When Growing Your Fund” was held at the Harvard Club in New York City.

Follow the Right Path When Growing Your Fund

On June 29, 2016, a seminar called “Follow the Right Path When Growing Your Fund” was held at the Harvard Club in New York City. The event was co-hosted by Cantor Prime Services; Kleinberg, Kaplan, Wolff & Cohen; and EisnerAmper LLP. The event showcased a panel of guest speakers such as Daniel Cohen (Cantor), Noel Kimmel (Cantor), Jason Grunfeld (Kleinberg Kaplan) and Frank Napolitani (EisnerAmper) who provided their views, insights and ideas from both operational and legal standpoints on some of the issues a fund may encounter as it begins to grow and take on more investors.   

The key topics discussed included the following: 

  • Operational due diligence (“ODD”) in today’s fundraising environment – ODD is much more important than it was 10-15 years ago, and investors are growing increasingly conscious of this function.  Some of the characteristics that a high quality ODD would feature include transparency, knowledge of the space and legal/compliance infrastructure.
  • Having a business plan prior to launching and continuing to follow the plan after you launch is critical – Demonstrate to all service providers how you will be dealing with specifics of the fund launch and raising money from investors.
  • Sticking to your marketing plan – Why do you want this investor to contribute to your fund? Make sure that all documents included in the fund’s pitch book are in agreement and consistent. The key to marketing the fund is using the time and meetings with potential investors as efficiently as possible.
  • Utilizing separately managed accounts (“SMAs”) – Managers have to be conscious of the costs of using SMAs and how SMAs will change daily operations, reporting issues, fund expenses, etc.   Investor liquidity is extremely important when considering the use of SMAs. 
  • Outsourcing services to third parties has become increasingly popular since the credit crisis in 2008.  Some of the services/functions typically outsourced include CFO, trading and compliance. Some of the outsourced services are considered fund expenses, whereas in-house services are charged to the management company.
  • Negotiating most favored nation (“MFN”) and key-man provisions in side letters with investors – The terms for MFN should be on a prospective basis and should have certain limitations on investments.  Any key-man provisions should be specified in the formation documents or side letters.
  • Maximizing your prime broker capabilities – Consult with your prime broker on the fund’s individual strategy, stated goals and stage of business development. Prior to that step, choose your prime broker based on their ability to finance securities, trade execution, technology, client service/support model and capital introduction support. 

Frank Napolitani, Director, Financial Services Group has nearly 20 years of experience working with organizations including a fund of funds, family office and prime brokerage firms, and providing consulting to investment fund managers.

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