Separately Managed Entity
-It is possible to set-up a separate structure, wholly owned by a single investor, or a close group of investors, such that the investor’s money is not commingled with the monies of the investors into RapFlag.
-Online Investment Platforms do not generally accept private investors from all jurisdictions, and different platforms exclude private investors from different jurisdictions. It is therefore not possible to get the desired wide exposure by opening several personal account directly under the name of the separate investor. To accomplish the diversification goal, a legal entity, wholly owned by the separate investor, needs to be established, and most likely at least one subsidiary will also need to be established.
-The separate structure can be established anywhere in the world: Andorra, Anguilla, Bahamas, Barbados, BVI, Cayman, Curaçao, Gibraltar, Guernsey, Hong Kong, Ireland, Lichtenstein, Luxembourg, Mauritius, Panama, Saint Kitts and Nevis, Saint Lucia, Switzerland, Turks and Caicos, …
-Customization of assets: you get to chose your own asset allocation, in consultation with the Investment Manager.
-Replacement of Investment Manager: if you decide you can fire the Investment Manager and keep the structure and have it managed by yourself or another Investment Manager.
-Reduction of operational risk (accounting): you reduce the impact of a hypothetical error committed by the Fund Administrator when calculating the net assets value. When you’re the only owner such a hypothetical error does not usually have meaningful adverse implications. The risk of the shareholding records being lost is anyways insignificant, since the shareholder registry is kept with the Investment Manager, the Fund Administrator, and with the Registered Agent.
-Reduction of operational risk (compliance): when your money is commingled with that of other shareholders in RapFlag then you run the risk of having your money be frozen in the case that some of the Fund’s accounts are frozen due to a non-compliance incident which could have nothing to do with you in particular.
Elimination of Fraud and Embezzlement Risk: the risk of the Investment Manager defrauding you and embezzling your funds is not eliminated when you set-up a separately managed entity as described. This is because the Investment Manager is still the Authorized Signatory in the accounts.
Negotiation Power in front of Online Lending Platforms: It is easier to negotiate preferential investment terms if it is all done via a single entity with an aggregate amount.
-Set-up costs: the Investment Manager has extensive experience in setting up legal structures and has the know-how to negotiate the lowest possible legal set-up costs. The governmental and legal costs will be borne by the Separate Investor. I estimate between $1,000-8,000 set-up costs depending on the complexity and jurisdiction.
-Maintenance costs (governmental): this is seldom more than $1’000 per year, depending again on the jurisdiction.
-Accounting and reporting costs: depending on how often you wish the assets to be valued by an independent accountant. This cost can be zero if you’re happy taking the valuation directly from the Investment Manager once per quarter.
-Managerial resources consumption: setting up another structure, opening accounts, keeping another set of accounting books, and managing a separate portfolio takes up significant managerial resources from the Investment Manager and his staff.
-Realistically the minimum is $2ml for a separately managed entity to make sense for both the Separate Investor and the Investment Manager.