In conjunction with NCM Fund Services (NCM) and RBS International (RBSI), Womble Bond Dickinson (WBD) hosted "FUNDamentals" on 3 September in Edinburgh. This event marks the first in a series of funds events tailored to those in the sector.
Chaired by Jonny Williams (WBD's head of UK Financial Services), the event was well attended by those in the industry including fund managers, private equity firms, asset managers, other advisers and banks.
WBD's Caroline Stevenson discusses and comments upon some of the main themes below.
Launching a fund
The event started with an informative talk by WBD's Barry Stimpson. Barry's career has seen him on both sides of the investment fence – having spent time as an investment banker in UBS and now being head of funds at WBD. This experience means Barry was well placed to give an insightful talk into the key factors you should consider when launching a fund.
Interestingly, Barry discussed whether you actually needed a fund at all and highlighted the simplicity in cost savings if you manage to avoid one. The main takeaway message was that it's key to get the right structure in place from the outset because if you don't you can't put it right retrospectively. The potential criminal offence aspects were also mentioned as a word of caution.
Barry's presentation closed on the topic of ILPA – the Institutional Limited Partners Association. ILPA is a networking group aimed at connecting and empowering partners and ILPA have released a set of Principles (version 3.0) in June 2019.
These principles are aimed at "fostering transparency, governance and alignment of interests for GP's and LP's" and include significant changes. One such change is the recommendation that where capital is drawn from a short term loan collateralised on uncalled LP capital, the preferred return should be calculated from the date capital is at risk (i.e. when the loan facility is drawn, not when the LP capital is called).
It was interesting to get the industry view on this where Mike Lewis (mentioned below) thought that despite the publication of the principles, he's not seen widespread compliance with them.
Temporary funding & AIFMD
Kathleen Mcleay from NCM took the floor next to discuss some practical difficulties that you can encounter through the life cycle of your fund. This insight was delivered through a case study which was a really powerful way to highlight the difficulties that fund managers can face when interpreting some of the subjective regulations that apply via FSMA.
Kathleen is a qualified lawyer and has been CEO of NCM (a fund administrator based in Edinburgh and London) for over 10 years. Kathleen therefore knows first-hand the difficulties that some of the language (or lack thereof) within FSMA can create.
The case study revolved around the definition of leverage in the context of temporary borrowing. It highlighted the difficulty faced by those trying to interpret the meaning of "temporary" due to FSMA not including a definition.
The key messages from this section was (1) you shouldn't be afraid to push your advisers for a view (so long as their view is based on logic and legal reasoning), (2) if you use a limited partnership agreement as part of your structure, you should ensure that it permits you to do what you might need to do in the future from inception. Wisely, Kathleen noted that if you ever need to borrow, you probably will need to do that fast so it's prudent to provide for borrowing from the outset and (3) you should make your bank aware of your AIFMD status so that facility documentation is clear and unambiguous.
Banking for funds
Next up, Mike Lewis of RBSI offered the bank's perspective. RBSI provides banking services to the AIF industry and are based in London, Guernsey, Jersey and Luxembourg. Mike's 31 years' experience with the firm has seen him based in all of those locations giving him a great understanding of the ways of working in the different jurisdictions.
Mike really knows the market and commenced his talk with a general overview of what's happening and what he predicts for the future. One thing everyone agreed on is that the funds sector is busy and it was felt that whatever happens with Brexit is not going to change that.
Mike's talk discussed the trends he is seeing from a banking perspective including some of the types of lending prevalent in the market place. Each of investor backed lending facilities, asset backed lending facilities and general partner co-invest facilities were described and the key considerations for a bank in offering those types of lending was also revealed. This provided some real practical tips for those seeking funding.
For more information on the topics discussed, to look for advice in relation to funds or to be added to our FUNDamental series invitation list, please get in touch with the team.