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Management structure - Coggle Diagram
Management structure
Track record
When appointing a guardian of assets, it is important to know what experience they have in already providing that service, both as a business and the key individuals involved within that business
Investors are more likely to invest in a fund managed by someone with a good history of success and returns, this doesn't stop new managers from successfully raising funds but may have an impact both on the regulatory appetite in the preferred jurisdiction of the fund and the management and peformance fees a manager can command
We live in a highly regulated environment with both onshore and offshore fund jurisdictions globally putting in place ever greater levels of investor protection in the form of investment fund and fund management regulation
The global financial crisis of 2007-2008 threw a global spotlight on the level of risk some were willing to take to gain great rewards amidst a culture that was viewed by many as placing those rewards above the protection fo their customers
Many commentators have likened this risk-taking attitude to the roll of a dice at the blackjack table and so as economies and governments have recovered and continue to recover from this crisis, greater scrutiny has been placed on the controls governing third party management of people's money
Applications to be approved as fund promoters have become more scrutinised with regulators requiring sight of the skills and experience of the fund promoter demonstrated in a tangible way, such as financial results, investor return profiles and successfully completed investment projects
For example, the GFSC regards the promoter of a fund as the party ultimately responsible for its success. The GFSC welcomes approaches from promoters of the first rank who have a favourable track record in the establishment and/or management of investment funds
Demonstrating track record may through a combination both of the fund manager's track record and that of its individual principles, the latter becoming more important where a fund manager has not been in existence very long and so has little or no ostensible track record to declare
From an investor perspective, the track record of the individual people can often be important than that of the manager as a whole. It is often true that people buy into people
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When considering the manager, investors will have specific regard to
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Skin in the game
Whilst the performance fee is said to align the interests of the manager to those of investors to some degree, investors may also look to see that the manager has itself invested in the fund
This helps to strengthen that alignment of interests as the manager risks losing that portion of invested capital as well as sharing in any gains
The first stage of the fund for the promoter is to gauge interest which it will typically achieve through a round of meetings or roadshows with prospective investors at which it will unveil its 'deck'
The deck is a brief presentation setting out what the investment objective is, who will manage it and over what timeframe and how investor returns might be driven. These are information conversations but assist the promoter in gauging interest for their concept and its feasibility for continuing
Often the promoter and fund manager will be the same group of people. This is so because an idea requires the people with the relevant skills and access to investor funding to drive it
Ultimately it is the people with the know-how and ability to make it happen that investors are buying into rather than the idea itself