From Personal Investor to Professional Fund

Many successful personal investors eventually consider using their expertise to manage other people's wealth. But what does this entail? This article outlines what's involved in becoming a professional investor.

What Changes When You Invest for Others?

Whether you invest in crypto, the stock market, or real estate, if you're successful, you'll notice your personal or business relations becoming interested in your strategy. Some investors may choose to accept money from third parties. It's an interesting idea, as it allows you to scale your successful strategy beyond just investing your own money.

It's important to know that this comes with necessary choices. It's a big responsibility to invest other people's money. You'll fall under many new regulations, which is crucial to realize. In crypto, it's quite easy to transfer funds or digital assets to another wallet and manage them. You need to be very careful with this, as it's not allowed.

Asset Management vs. Fund

When you want to invest on behalf of others, you have a choice between asset management and a fund. The main difference lies in the approach and degree of individualization.

Asset Management provides a customized service per client. Each client receives a portfolio tailored to their specific situation. This can be seen as a personalized service.

A fund is more of a product than a service. It manages collective assets, or a shared pool of money from multiple investors. All investors in the fund are treated according to the same investment strategy, executed by a professional investor, the fund manager. Funds offer economies of scale for the manager and give investors access to professional strategies.

The fundamental distinction is that asset management provides each client with a tailored investment approach, while a fund benefits all participants from the same collective strategy.

Types of Funds

There are different types of investment funds:

• Pension funds
• Passive investment funds (such as ETFs)
• Active investment funds (trying to beat the market)
• Specific funds focused on stocks, startups (venture capital), companies (private equity), real estate, or crypto

This article primarily focuses on the last category.

The Role of a Fund Administrator

Once the fund is set up, the fund manager's focus is mainly on attracting and managing assets. In other words, finding investors for the fund and investing the money as well as possible.

A fund administrator like AssetCare supports all other tasks. A fund administrator performs crucial tasks, including:

• Conducting CDD/KYC research for new investors
• Independently calculating the value of each investor
• Collecting and processing data from various sources
• Reporting to stakeholders such as fund managers, investors, and regulators

Collecting data for reporting is more complex in crypto than in a traditional fund. A traditional fund might invest with 3 large banks and thus need to collect data from 3 parties. In the case of crypto, funds often invest with multiple exchanges and sometimes directly on the blockchain. That's why AssetCare has API connections with all major exchanges for continuously receiving data on transactions and investments of clients. For on-chain data, AssetCare uses solutions like DeBank, MintScan and SolScan. 

What's Involved in Setting Up a Fund?

Setting up a fund requires thorough preparation. Fund documentation must be drawn up, and a fund must register with the regulator (AFM).

The costs for a registered fund (AIFMD light) in the Netherlands are between €30,000 and €40,000. Considering everything you need to set up and the registration costs, you'll quickly need to raise at least 3 to 5 million euros in initial capital.

Advice for Aspiring Fund Managers

If you've become enthusiastic about starting your own fund after reading this article or listening to the podcast, take our advice for aspiring fund managers to heart:

1. Be prepared for the great responsibility that comes with managing other people's money.
2. Ensure a solid investment strategy and strong risk management.
3. Make use of professional services for custody and administration.
4. Be aware of the regulations and obligations involved in professional asset management.