Agree seeding arrangements
What types of seeding models are available?
There are a number of different seeding models in the market - the key models are set out below.
- Early-bird or funding share class: This involves creating a special share class for anchor investors who invest either at launch or prior to a certain later date or AUM threshold has been reached. Such a share class usually has lower than normal management and/or performance fees to attract investors; but equally investors in the class may be restricted from requesting redemptions for a certain period or alternatively, such redemption requests may attract redemption fees.
- Fund revenue sharing arrangement: In this model, the manager agrees to provide the investor with a fixed or variable amount of the fund’s total revenues.
- Manager equity stake model: This involves the investor providing capital for investment by the fund with the manager taking an equity stake and therefore associated control rights over the management business; and potentially also negotiating further additional special control or veto rights.
- Managed account model: A seed investor may decide that it does not wish to invest in the commingled fund and would prefer to establish its own managed account. Whilst this can be useful for the manager to establish a track record, it also comes with additional costs and control of the managed account rests with the investor. Most importantly, the commingled fund does not get the benefits of having an anchor investor. For further information on relevant considerations when setting up a managed account, please see Grow: Launching a Managed Account.
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