With the many current global uncertainties, not least the war in Ukraine and the consequences of it, many GPs are finding it harder to close their funds, particularly first-time funds, at what they believe is an appropriate minimum level. At present, some investors are holding off from committing to any funds and the market appears to be rather soft. This is frustrating for a GP which has already identified suitable deal opportunities and is keen to facilitate an investment before the chance to support a potentially successful private company is lost to a competitor.
A solution to this difficulty is to use the Mainspring Investment Platform, which is tax transparent and can be established quickly and cheaply, has low ongoing administration costs and is simple to operate. There is no VAT charge associated with the Platform. The arrangements put in place will ensure that the GP will remain in full control of any investment held by an investor through the Platform.
The Mainspring Investment Platform offers individual investors, whether from the UK or elsewhere, the opportunity to hold identifiable shares in a private equity investment or an individual fund, through a separate account (plus sub accounts for any further investments). The Platform is run by Mainspring Nominees Limited, an FCA authorised private company custodian service, which currently services over 50 fund managers and over 50,000 investors and advisers. Mainspring undertakes all the fund administration and accounting, including onboarding and AML checks, transaction and cash management. Full reporting can be made available to investors, advisers and the GP, as directed by the GP, through a GP branded portal.
How the Investment Platform works
The Platform allows a GP to arrange a direct investment for one or more investors before a fund is closed. The investment can be held on the Mainspring Investment Platform in the short term and subsequently (subject to appropriate consideration of possible taxation and transfer issues) be transferred into the fund in exchange for a limited partnership interest, or alternatively held outside the fund for the long term.
The GP will enter into an investment agreement with the investor, which sets out the agreed investment parameters, together with the fee structure and any carry arrangements. The GP will take all investment decisions. The GP will also enter into a Custody Agreement with Mainspring Nominees Limited, which will allow the latter to hold the assets on behalf of the investor. All funding will flow through Mainspring which is regulated to hold client money, on the instructions of the GP.
This structure will allow the GP to continue its investment activity before the first closing of the fund and begin to establish its track record as well as receiving fee income. The Mainspring Investment Platform offers a swift and economic way for the GP to start its business in these rather challenging times, rather than having to wait until sufficient investors are ready to commit to a minimum level, allowing a first closing of the fund to go ahead.
Article written by Bridget Barker, Mainspring Chair and who spent over 35 years with Macfarlanes, one of the leading City law firms, where she was Head of the Investment Management Group.