Is there any seasonality in starting a fund?

“To everything there is a season” is not only a well known Tanakh passage and a popular song from 1965 by The Byrds, it is relevant for starting investment structures.

There is certainly a connection to the calendar in when to start a fund.  Any type of fund can be started at any time of the year, there is not beginning or end to the calendar, a fund in registration in late December will still be in registration in early January and nothing will change other than what day it is.

A better way to address the question may be “why are certain times of the year better for organizing an investment structure than others?” And like any good question, the answer is “it depends” and “there are several ways to answer that”.

Many investment advisors look at when the fund is expected to start with investment performance in mind. It is certainly better to have a full year’s investment performance. For instance, if a fund starts in February and the markets did really well in January, then the year to date performance of a new fund starting in February starts off behind those funds that were operational during January. The same is the rest of the year. Of course the reverse can also be true, if the markets are down in the first quarter a new fund starting in April is at 0% when a competitor may be -5%. This will only be a temporary condition, however, and any potential investor doing their due diligence will spot the disparity.

On balance, however, it is ideal to have a full year’s performance.

Timing to become effective on December 31, however, is next to impossible, for a number of reasons. If a fund is not ready to go effective by December 20, the chances of much change prior to the end of December is not strong. SEC staff, like the rest of the country, takes time to be with family over the Christmas holidays, so delays are inevitable. It can happen, but don’t count on it.

The more likely scenario is that a fund that becomes effective during the middle of the month, the investment advisor may choose to put seed money into the fund and begin operations on the last day of the month, to have full performance in the subsequent months. This happens all the time, and is actually more common than not.

Another related question can be “when is a good time to file a fund with the SEC”. The first of the year, again, comes into play. A mutual fund takes approximately 120 days to go through the SEC, allowing 150 days is usually wise. If one backs up from December 20, as in the case above, that would put 150 days approximately at the first of August. Wall Street, and Washington DC, tend to treat the month of August much like the second half of December, a time to get out of the city and head to the beach or mountains with family. Very little happens in the month of August, or certainly not for all four weeks. Invariably at least one of those weeks a call or email to the appointed examiner on a fund filing will be met with an “out of office” message.

So if the goal is first of the year, a target filing date of July is more wise than August.

A final comment on seasonality goals is retirement plan season. We have been a party to several discussions in the past where an advisor wanted to make sure they had a reasonable opportunity to be up and running when IRA season was in full mode, the first quarter of the calendar year. While January 1 might be ideal, the real goal was to be operational by the middle of February or 1^st of March. With that timeframe in mind, filing in September or October usually provides enough leeway, if the team helping you get your fund organized has the right pieces in place.