Tue, 07/04/2015 - 11:45
For the fifth consecutive year, the Best North American Accounting Firm is Anchin, Block & Anchin LLP. With a staff of more than 350 and numerous specialised industry and service teams, Anchin is a full-service accounting, tax and advisory firm that provides investment companies, privately-held businesses, and high net worth individuals with a wide range of traditional and non-traditional services.
Start-up funds remain a key area of focus says Jeffrey Rosenthal (pictured), CPA, Partner- in-Charge of Anchin’s Financial Services Group. New managers are finding it hard to reach critical mass and raise capital. Part of this is failing to stand out from the crowd.
“They need to focus on best practices; this is critical and something we always preach to our start-up clients. Don’t act like a USD20m fund on day one, act like a USD200m fund,” says Rosenthal. “A lot of these managers only know how to trade. Many have spun out of a large institution or an existing hedge fund and one thing’s for certain, it’s very different having to run your own business. Investors will ask a lot of questions, especially when the market is volatile. At all times, today’s hedge fund manager has to justify their trading strategy.”
Rosenthal and his team advise start-ups on how to stay the course. Is it the right time to start a hedge fund? Are they prepared with sufficient resources to go two years without making any money? The management fee is being more and more stretched to cover operating expenses.
As Rosenthal observes: “It’s a difficult situation for a start-up with USD20m or so in AUM. They need to learn to adapt and adjust when necessary and in that respect we are an excellent sounding board for our clients. We talk to them about setting up budgets, thinking about what their expenses are for the next year. Have they fully thought through everything prior to launching a fund? Truthfully, we’d rather gain a potential long-term client by advising someone to delay launching a fund than to let them proceed and watch them go out of business six to twelve months down the line; that helps nobody.”
Tax efficient structuring and estate planning do not tend to be top-of-mind for start-ups. In fact, it’s the best time to address these issues, rather than later on when the manager tries to do some asset transfer planning. That tends to be a more expensive exercise, simply because the value of his interests in the fund are worth more.
Anchin uses a custom tax layering programme with respect to a fund’s tax allocations. If a manager invests into a long-term trading fund which has a significant amount of unrealised gains, how does the partnership allocate those gains once they are realised?
“We analyse each security such that the tax allocations mirror the economic allocations made to each investor. Therefore, that new investor won’t be allocated a portion of those unrealised gains for securities that appreciated prior to them entering in to the fund when the gains or losses become realised. It provides a much better allocation between tax and book for the manager and a more equitable tax arrangement for the investor,” explains Rosenthal.
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