A private investment fund (such as a hedge fund, venture capital fund or a private equity fund) would, in its ordinary course of trading & investing, establish relationships & accounts with third-party service providers.
One such service provider would be a corporate bank.
Funds & Banking:
A transactional bank account (established at a corporate bank, custodian bank or a depositary) is required for a fund to continue its day to day operations.
- Subscriptions & Redemptions: Receiving investors' monies as part of the subscription process and returning capital to investors as part of the redemption/distribution process.
- Cash Management: Sending monies to, and receiving money from prime brokers, custodians and depositaries.
- Expense Payment: Paying fees to third-party service providers, such as the Fund Administrator, corporate service providers and the Investment Manager.
Types of Accounts:
There are different types of accounts that a fund can establish at a corporate bank.
- Transactional Account: Used for sending and receiving third-party payments.
- FX/Payments Facility: Funds that have Participating Share classes (or brokerage accounts) in a different currency may utilise a Payments Service Provider or an E-Money Institution to reduce FX fees.
- Brokerage Account: The prime brokerage that the fund will use may have a cash account. However, similar to PSPs & EMIs, they do not ordinarily allow third-party payments to be made.
- Escrow Account: In the case of private equity or venture capital funds, an escrow account may be established to ringfence a portion of the incentive fees due to the Fund Managers.
Account Opening Process:
In the present times, the global KYC, AML & CTF standards are relatively stringent. Therefore, the account establishing process at a corporate bank (for a transactional bank account) has become more complex and time-consuming.
Whilst Fund Managers and Sponsors are free to handle the entire process on their own (or tap into their existing banking relationships), 𝐕𝐀𝐔𝐁𝐀𝐍's Operations function is able to facilitate the entire process (having handled this process for many clients in the past).