Starting up an overseas fund, especially an open-end one, can be quite the undertaking. Whether you're a seasoned overseas fund manager or a fresh-faced startup team, getting the hang of the whole setup process is crucial. Keep in mind, regulatory requirements are always evolving, and each institution has its own unique quirks. Even with similar fund structures, you might face different challenges. But in this ever-shifting landscape, knowing the core elements is your ticket to handling these hurdles. Today, we're dishing out nine crucial factors for getting your overseas fund off the ground.

1.Fund Location

Most overseas funds call offshore jurisdictions home, and the Cayman Islands is the go-to choice. Lately, financial hubs like Hong Kong and Singapore in the Asia-Pacific region have introduced their own local fund options. So, how do you decide which spot is right for you? Here are a few things to weigh:

Tip: For first-time fund managers heading abroad without specific location requirements, it's smart to lean toward those popular fund locales. These places usually offer a broader support network and more reference cases for easy comparison.

2.Fund Structure

Once you've locked in the fund location, the next move is figuring out the fund structure. Keep in mind, this decision is tightly linked to the associated costs. First, think about which scenario suits you better:

Tip: Once you've settled on the fund location, it becomes easier to pick out the appropriate fund structure. Most open-end funds go for corporate fund structures, like the ones from Cayman and BVI, which are commonly seen in the market.

3.Investment Strategy

Clearly laying out the fund's investment strategy is a must and it pays off in various ways, like:

Tip: While most overseas fund jurisdictions don't impose restrictions on investment strategies, it can be tricky to blend listed securities and private equity investments in a single fund. This can impact operations (valuation and redemption). So, be sure to consider operational details when launching a hybrid fund.

4.Fund Redemption Frequency and Valuation

Open-end funds usually get valued monthly, and this frequency can't be less than the redemption frequency. Keep in mind that factors like high trading volumes, frequent valuation, complex fee structures, OTC and private debt holdings, and fund dividend distributions can affect operational costs.

Tip: Most hedge funds opt for a monthly redemption frequency and valuation frequency. In simple terms, higher valuation frequencies mean higher service costs. Traditional fee structures include different fees for different fund classes. However, structures like "subordinated and senior share classes" should be explicitly addressed, as they may increase costs.

5.Minimum Subscription Amount

In the case of Cayman funds, the typical minimum initial subscription is $100,000. Lowering this threshold can lead to additional costs.

Tip: Most fund domiciles categorize investors, and alternative investment funds usually accept subscriptions only from qualified investors. The majority of these funds require a minimum subscription of approximately $100,000. Lowering this amount to accept a broader range of investors may require compliance with additional regulatory requirements, which can increase operational costs. Make sure to discuss this with your service providers.

6.Licensing

In today's global regulatory landscape, lacking financial licensing can be a significant roadblock. This especially applies to overseas fund managers or investment advisors, as in most cases, one of them may be licensed. Whether you choose to apply for a license yourself or collaborate with a licensed asset manager, allocate a budget for this purpose.

Tip: Most fund managers in the Asia-Pacific region apply for asset management licenses in Hong Kong or Singapore or collaborate with licensed entities. Banking institutions in these jurisdictions typically require fund managers or advisors to be licensed. Ensure that this aspect is included in your budget when planning the establishment of an overseas fund.

7.Timing

Planning is crucial when setting up an overseas fund. The process, from inception to investor contributions, can take up to two to three months. As a fund operator, you should participate in all procedures related to fund formation, including reviewing documents, assisting with account opening, learning payment processes, understanding compliance requirements, managing investor expectations, and facilitating subscriptions.

Note that there's no one-size-fits-all template for documents because your fund terms and strategy are unique. You would need to spend reasonable time to review and understand the key terms outlined in the fund documents, particularly those in the PPM/appendix and subscription form.

Tip: Being cautious about the fund formation timeline is recommended, as it involves different parties and procedures that you are not familiar with, particularly if it is your first fund. In addition, the timeline for bank account opening can be challenging to predict. Communicate closely with your fund administrator on each timeline, for instance, the initial offering period when it is an open-ended fund or the initial closing date for a private equity fund.

8.Costs

Cost control is crucial. In most cases, the cost for setting up a Cayman fund structure is standard, including legal fees, government fees, bank charges, and other service fees, most of which can be accounted for as fund expenses. Avoid making significant structural changes after lawyers start drafting documents, as this is likely to require revised quotes, potentially extending the setup timeline.

Tip: When comparing service providers and their offers, you'll notice variations in cost quotes due to differing practices. The most effective way to monitor fund formation cost is to focus on the major expenses such as legal fees, fund administration fees, audit fees, etc. Don't forget that Hong Kong bank account opening also incurs account opening fees.

9.Find Your "Guide"

Lastly, you need a knowledgeable, responsive, and patient "guide" who is familiar with the entire fund establishment process and operational details and is willing to support your fund business from scratch. Consider engaging a fund administrator or another licensed entity offering professional fund advisory services in your region.

Tip: Your fund administrator is critical in managing various back-office functions. They should be your most reliable partner throughout the entire fund life cycle. Finding a knowledgeable, responsive, efficient, and well-connected fund administrator can greatly assist in the establishment and ongoing operation of your overseas fund.

In conclusion, establishing an overseas fund is a multifaceted process that requires careful consideration of these nine key points. Remember, the path may be challenging, but with a thorough understanding of these elements, you'll be better equipped to navigate the complexities and achieve success in the global asset management industry.