EY Publishes Considerations for Investment Firms ‘Going Retail’

In a recent report, EY highlights fund structure considerations for firms looking to launch private funds products geared towards retail investors. The report notes that launching in the proper operating model “positions firms for long-term success by establishing key capabilities (e.g., services, partnerships, and data and technology) to grow the retail business, launch more offerings and expand into new distribution channels.”

While focused on providing advice for private firms looking to gain access to retail markets, the report highlights important differences between fund structures such as tender offer funds, interval funds, listed closed-end funds, and 1934 Act Section 3(c)(7) exempt funds. It also delves into the valuation requirements of 1940 Act funds and importantly notes, “There is no single leading practice valuation methodology or approach, largely because of the diversity of fund structures, asset classes and investment strategies.” The report emphasizes that training is key for team members involved in the valuation process and potentially a third-party valuation provider, if utilized.

Regarding tax considerations, the paper states that any manager should consider who the target investor is in order to streamline experience, particularly with tax reporting. EY notes that “any firm entering retail markets should engage tax advisors — as well as fund administrators, distributors and other external partners — as early as possible in the planning stages.” Specifically, the fourth question within the report states developing a distribution plan and working with partners will be key to the success of the fund.

Click here to view the EY report on ‘Going Retail’.