Launching an investment management firm is an ambitious endeavor that requires meticulous planning, strategic decision-making, and a deep understanding of the financial industry. Whether you’re a seasoned professional branching out or an entrepreneur venturing into finance, this guide will walk you through the essential steps to establish a successful investment management firm.

1. Develop a Comprehensive Budget

Responsibility: Investment Manager with support.

Before initiating any operations, craft a detailed budget outlining projected expenses, revenue streams, capital requirements, and contingency plans. Utilizing specialized budgeting tools can provide clarity and precision. Collaborate with financial experts to ensure that the budget aligns with your firm’s strategic goals.

2. Talent Selection

Hiring vs Outsourcing: Choose which services you want to hire in house talent for or outsource.

3. Select Fund Service Providers

Responsibility: Business team with support from an industry expert (e.g., COO, outsourced consultant such as Quadrangle).

Choosing the right service providers is pivotal to the firm’s success. Key service providers include:

• Legal Counsel: Navigate legal complexities, draft formation and operating documentation.
• Audit/Tax Professionals
• Administrator: Maintain books and records, perform daily trade reconciliation, NAV calculation and investor services.
• IT Services: Maintain technological infrastructure.
• Cybersecurity Experts: Protect sensitive data.
• Compliance Specialists: Assist with SEC registration, compliance training, and compliance manual drafting.
• Counterparties (Clearing and Execution): Facilitate trade settlements, execution and custody.
• Outsource CFO (Accounting & Operations): Manage financial operations.
• Treasury System Providers
• Outsource Trading Firms
• Trade Systems (OMS, PMS, EMS): Optimize trading operations.
• Risk Management Systems
• Data and Research Providers
• Expert Networks

Engaging with reputable providers ensures operational efficiency and adherence to industry standards.

4. Select Investment Manager (IM) Service Providers

Responsibility: IM with support.

Beyond fund-specific providers, it’s essential to onboard services tailored for the IM entity:

• Graphic Design Firm: Develop branding and marketing materials.
• HR/PEO: Handle payroll, human resources and employee benefits.
• Insurance Providers: Secure necessary coverages.
• Real Estate Broker: Find suitable office space.
• Banking Institutions: Select a bank/banks.

5. Regulatory Registrations and Compliance

Responsibility: Compliance Firm.

Ensuring compliance with regulatory bodies is non-negotiable. Key steps include:

• Register or File Exemption with Applicable Regulators: Such as the SEC, CFTC, or FCA.
• Drafting your Firm’s Compliance Manual
• Employee Compliance Training

Collaborating with a dedicated compliance firm can streamline this process and mitigate potential legal challenges.

6. Negotiate service provider contracts

Responsibility: Provider that has both the data and subject matter expertise for vendor and trade and financing contracts.

• Secure Favorable Terms: Within your vendor and counterparty agreements.
• Ensure Compliance with Regulations: SEC, CFTC, FCA.
• Provide KYC and Account Opening Documentation: Essential for onboarding service providers.
• Distribute PII: To be sent securely in order to onboard investors.
• LEI Registration: Obtain a Legal Entity Identifier.
• Handle Regulatory Protocols: Such as ISDA protocols (e.g. Dodd Frank I and II, SBS Top-Up, CFTC & SEC IM Seg, EMIR)

7. Draft Essential Documentation for Securities Offering and Entities

Responsibility: Legal Counsel.

Critical documents lay the foundation for operations and investor relations:

• Draft Term Sheet for Securities Offering: Outline the terms for potential investors.
• Form IM Company: Legally establish the investment management entity.
• Prepare Fund Structure: Define the organizational and operational framework.
• Establish Investor and Investment Vehicles: Legally establish the entities for investments.
• Draft Private Placement Memorandum (PPM) and Limited Partnership Agreement (LPA): Formalize disclosure and rights and obligations to potential investors.
• Draft Investment Management Agreement: Outline the relationship and responsibilities between the fund and investment manager.

8. Set Up Operational Accounts

Responsibility: Administrator.

Efficient financial operations require the right bank accounts and careful consideration of your bank entity.

• Select and Open IM Operating Accounts: For daily operations.
• Select and Open Fund Operating Accounts: Manage subscriptions, redemptions, and custody.

Conclusion: launching an investment firm require advanced planning

Establishing an investment management firm is a multifaceted process that demands attention to detail, strategic planning, and collaboration with various industry experts. By following the steps outlined above, budding investment managers can lay a solid foundation for a firm poised for success. Remember, the journey doesn’t end here; continuous adaptation, learning, and adherence to industry best practices and new regulations are crucial as the firm grows and evolves.

How Quadrangle and QDS Can help

Quadrangle and QDS have the software, data, and subject matter experts to assist with the steps outlined above. See below a few key highlights of our offering:

• Vendor Terms Database: Utilize this database when developing a budget and selecting service providers.
• Client Profile & QDS Score: Calculates your score and rank to determine the terms you may achieve.
• Term-by-Term Reporting: Highlights the terms in each agreement.
• Negotiating Contracts: Quadrangle’s subject matter experts negotiate preferred terms utilizing a robust database and software platform. 
• KYC Exchange: Securely share formation, operational, and tax documentation with third parties.
• Virtual Data Room: Securely send PII and documentation to investors and other third parties.

Click the link below to learn more about how QDS and Quadrangle can assist with your new launch and ask about our Launch Workflow solution.