Syndicates - Utilising someone else’s Infrastructure: A flexible entry point into Investment Management
For emerging fund managers, angel investors, or professional investors looking to formalise their investment activities, syndicates offer an accessible and structured way to start managing capital. Syndicates are becoming an increasingly popular method for those entering the investment management space, providing the ability to leverage established infrastructure while also offering flexibility and scalability.
In this article, we will explore what a syndicate is from a managed funds perspective, how it works, and the key considerations to keep in mind when setting one up.
What is a Syndicate in the Managed Funds Context?
A syndicate is a structure within an existing Managed Investment Scheme (MIS) where an investor or investment manager pools capital from multiple investors to invest in specific assets. Each syndicate operates as a separate unit class within the MIS, meaning the funds and assets within the syndicate are segregated from other unit classes. This structure allows for different investments and investors to coexist within the same overall fund without cross-contamination of risk or returns between unit classes.
From a practical perspective, syndicates are particularly useful for:
• Angel or professional investors looking to formalise their investments and allow others to co-invest alongside them or operate on a deal-by-deal basis.
• Emerging venture capital (VC) managers who are entering the market by running smaller, deal-specific syndicates before moving on to larger funds.
How Syndicates Work with Established Infrastructure
One of the key benefits of launching a syndicate is the ability to rely on established infrastructure. By working with a infrastructure provider, you gain access to essential resources such as:
• Licensing and Compliance Support: As a syndicate lead, you are typically required to hold or be covered by an Australian Financial Services License (AFSL), either through your own AFSL or as a Corporate Authorised Representative (CAR) under someone else's license. An infrastructure partner can provide you with the appropriate licensing and supervision.
• Back-Office Support: A partner will often provide administrative services such as investor onboarding, fund accounting, and AML/KYC compliance, allowing you to focus on deal-making rather than operational management.
• Guidance and Supervision: Established partners offer guidance on structuring the syndicate, drafting documents, and ensuring all regulatory requirements are met. This is particularly beneficial for those new to fund management.
Many venture capital managers started their careers by running syndicates through established infrastructure, giving them a chance to test their strategies and build track records before launching larger, independent funds.
Key Considerations When Launching a Syndicate
If you are considering setting up a syndicate, there are several important factors to keep in mind:
1. Documentation and Disclosure
Even though syndicates are often smaller and more targeted than traditional managed funds, you are still required to provide appropriate offer documents. This could be a simple Information Memorandum (IM) or a Term Sheet, outlining the key details of the syndicate, the investment strategy, risks, fees, and terms for investors.
2. Licensing and Appointments
As the syndicate lead, you will be acting as an Investment Manager, which requires licensing under ASIC regulations. If you plan to promote the syndicate and manage investments on behalf of others, you must have an agreement with the Trustee of the MIS and be appropriately licensed. This can be done by holding your own AFSL or by being appointed as a CAR.
3. Earning Fees and Taking Upside
If you intend to charge management fees or earn performance-based compensation (such as a share of the upside or carry), you need to ensure that you have the appropriate licensing coverage. Failing to do so could result in regulatory breaches. Supervision under a licensed entity will help ensure compliance and mitigate risks.
Benefits of Syndicates
• Low Barriers to Entry: Syndicates provide a way for new managers to start managing external capital with fewer regulatory and operational burdens compared to setting up a full-scale fund.
• Scalability: As you grow and prove your track record, syndicates offer a natural stepping stone towards larger fund management activities.
• Segregated Assets: Syndicates allow you to keep each investment or deal separate from other syndicates within the same MIS, ensuring clear asset allocation and performance tracking.
Conclusion
For those entering the investment management space, syndicates offer a practical and scalable entry point. By partnering with an infrastructure provider, you can benefit from the licensing, guidance, and support necessary to get started while focusing on your investment strategy and deal execution. Whether you are an angel or professional investor looking to formalise your activities or an emerging VC manager, syndicates provide a flexible and cost-effective way to manage capital and build your track record.
If you are interested in learning more about how to set up a syndicate or need infrastructure support, contact FundBase Group today for expert guidance and tailored solutions.