WHEN IS THE BEST TIME TO LAUNCH A FUND?

The truth is, the best time to launch a fund is whenever you can raise enough capital to hit critical mass, and simultaneously when the investment opportunities are ripe.

That being said, there are certain times of the year where there may be some benefits to launching or at the very least some considerations;

TRACK RECORD

When you look back at a Fund’s track record, generally you gravitate towards the annual numbers. You may glance over the monthly or quarterly numbers just to determine what the risk of downside really is, but ultimately what you care about is how much money would I have made? Usually there is a half year, or stub year or sometimes 8 or 9 months in that first year of operations, which makes it a bit confusing at times. You have to look at the yearly numbers and determine if the year to date (YTD) number has been annualized or not. Visually, although it doesn’t change anything on the investment side, if you start in January the track record is much “cleaner” and the perception is that the manager carefully thought out the launch as opposed to rushed into it.

FUND EXPENSES / CRITICAL MASS

If you launch a fund with only a small amount of capital (depending on the structure used, and fund expenses up front) it can hinder your ability to successfully raise capital. The track record suffers from expense drag and while that has nothing to do with your ability to manage investments it does make it seem like you are underperforming. If you need to show proof of concept, you should carefully consider these up front expenses. At Fundviews Capital we can structure a fund with as little as $5,000 up front which helps minimize this risk and leverage existing relationships to help get off the ground without additional minimums and expenses.

AUDIT

Generally speaking, if you are a Registered Investment Advisor (RIA) you likely have a duty to have annual audits on all products. However there are circumstances where you can launch in the second half of the year, and get a waiver for that year’s audit. Instead of auditing 6 months of financials, you wait until the following year is over to audit 13 to 18 months of financials at virtually the same cost. This allows you to amortize the audit fees across a longer period, further reducing the expense drag when it can affect your track record the most.

CASH DRAG

When you launch a fund, sometimes you raise more capital than you can comfortably invest at one time. It may take several months to deploy the cash, muting the returns and causing “cash drag”. In certain circumstances if you structure the fund correctly, you can develop a “queue” of subscriptions over several months as you ramp up the investment pipeline and close deals. This generally helps with the drag issue, but also has the dual benefit of product demand. When people perceive things to be “scarce” or “rare” they generally want them more. Think playing cards, NFTs, watches, collectors items, and other such things. The same is true of investment opportunities. Whether or not this is intended it does sometimes play into the psychology of investors.

Going into the last few months of the year, we are entering one of the best seasons to launch a fund. Launching in November, December or January does have its advantages, and if you structure it properly and keep fund expenses low you can maximize your chances of success.

**The above reflects the personal opinions of the author, and is not to be considered investment or legal advice or advice of any kind.