Abacus has the experience and expertise to create and manage bespoke trusts, companies and funds to help our clients achieve their ambitions.
Offering a variety of structures enhances our ability to build long-term relationships with clients. For instance, a client may start with a trust for estate planning, later require a company for business operations and eventually seek to invest through a fund.
The Abacus funds team gives some examples of who would use an exempt fund structure and the advantages.
Entrepreneurs:
- A fund allows an entrepreneur to access a pool of capital from multiple investors, which can provide the significant financial resources needed to scale a business.
- By bringing together multiple investors investment risk is pooled which can be advantageous for an entrepreneur as it can be easier to raise larger sums.
- Entrepreneurs can focus upon specific types of investors, such as venture capitalists, private equity firms, institutional investors or high-net-worth individuals, depending on the objectives of the fund.
- Funds can be structured to provide stage-specific financing, allowing the start-up to receive capital in phases as it meets certain milestones, particularly appropriate for the new technologies, infrastructure, aviation, yachting and medical sectors.
- By using underlying SPVs underneath the fund structure for different projects and opportunities each can be insulated from the failure of another.
- Funds often bring together investors who offer more than just capital. Many investors in funds are experienced professionals who can provide strategic advice, industry connections and operational support.
- For an entrepreneur, this access to a network of knowledgeable investors can be invaluable in accelerating growth and entering new markets.
- Investors in a fund may take an active role in mentoring the entrepreneur to help navigate the challenges of scaling a business.
- By participating in a fund, investors collectively share the risk, making it less daunting for them to invest in a start-up that might otherwise seem too high risk on its own.
- Funds can be structured to include risk mitigation strategies, such as diversification across multiple start-ups or sectors, which can make the fund more attractive to investors while still providing the entrepreneur with the necessary capital.
- Funds are often designed with a long-term investment horizon allowing an entrepreneur to focus on building the business without the pressure of short-term returns.
- Backing from a well-structured fund can enhance the start-up’s credibility in the eyes of customers, partners and future investors.
A family business:
- Exempt funds can be used to unitise, manage and transfer ownership stakes in a family business to the next generation.
- A fund can help in creating a fair distribution of assets among family members, particularly when not all members are involved in the business' operations.
- The fund might also be used to invest profits and reserves in a diversified portfolio of assets outside the core family business, spreading risk and potentially increasing overall family wealth.
- Exempt funds can be structured to facilitate philanthropic activities.
- An Isle of Man exempt fund is regarded as a private arrangement, is not subject to separate regulation and can be established relatively quickly and economically be licensed administrators.
- An Isle of Man exempt fund if often referred to as a “Friends & Family” vehicle and is a popular option provided there are no more than 49 investors at any time and interest in the fund are not offered to the public.
- In some cases, exempt funds are used to manage employee benefit plans or pension funds within a family business.
- Family members might use an exempt fund as part of their retirement planning strategy, allowing them to save for retirement in a tax-efficient manner.
- A family business may use an exempt fund to manage liquidity, ensuring there are sufficient funds available for operational needs or expansion.
- Administration by a regulated, independent fund administrator provides an additional layer of scrutiny and security.
Investment clubs:
- Exempt schemes are typically subject to lighter regulatory requirements compared to fully regulated investment vehicles. It allows the club to focus more on investment strategies and less on administrative and legal requirements.
- Exempt schemes offer more flexibility in terms of the types of investments that can be pursued. The ability to tailor the investment strategy to the interests and expertise of the members is a significant advantage.
- Setting up an exempt scheme usually involves lower costs than creating a fully regulated fund. For an investment club this allows more capital to be directed toward investments rather than administrative overheads.
- An exempt scheme can be structured to meet the specific needs and preferences of the investment club members. This could include customised investment terms, profit-sharing arrangements, and withdrawal conditions that are more flexible than those available in regulated schemes.
- Members of an investment club are often more sophisticated investors who are comfortable making decisions without extensive regulatory protections. The nature of an exempt scheme offers an environment where members can pool their collective expertise for shared goals.
- Exempt schemes often offer a higher degree of privacy and confidentiality compared to more regulated investment vehicles. For an investment club that values discretion or wishes to keep its investment activities private, this is an attractive feature.
- Exempt schemes can be set up more quickly than regulated funds, which is beneficial for an investment club looking to capitalise on timely investment opportunities.
No action should be taken on the basis of this note, nor should it be construed as amounting to tax, legal or VAT advice. Suitable, specific and professional advice should always be obtained in respect of any particular issue.
