Before getting into the problem with relationships, let’s talk about the alignment of interests. At Capital Insiders, an appreciable percentage of our fund investors are new to the funds, and we are well-tuned when it comes to disclosures.




Throughout our experience, we have found that many fund managers claim to be aligned. However, the investors will find out that not all of the alignments are equal.




What would be a responsible description of alignment of interest? 






	
To some managers, this means investing alongside with their investors


	
Some others consider to be aligned with their investors when they invest a considerable amount of capital into the fund. 


	
Other managers find alignment when they have at least a minimum of 5% of the total capital raised by the fund at any given time 






At Capital Insiders we have asked ourselves the same question, and would like to share our thoughts:




Although we believe that investing alongside investors is a must to develop trust, we also would like to ask what happens when managers collect fees regardless of the fund’s performance and whether the manager is capable or not to reach out the hurdle or preferred rate offered to investors? 




We also believe that some fund managers might have the tendency to deploy capital fast to increase the AUM and to collect the fees associated with it.




Here is where we see the greatest dilemma: “Downside Protection”




The “performance fee” (aka carried interest) allows the managers to get paid when things go well, but what happens when market shifts and things go on a different direction? Does your manager offer any kind of “downside protection”? If not, why are they only aligned in the good times and not over the rainy days?






	
What happens if the fund suffers a loss? Is everyone aligned? If yes, how does it work?






As far as we know, we are one of the rare funds in America who offer an extra layer of protection, a Preferred-Alignment™.




At Capital Insiders, when it comes to a financial loss-prevention, part of our own capital serves as “first-loss” and the investor’s capital are in a senior position. That’s what we call: Preferred-Alignment™ because we like to think that our investors deserve some level of capital protection.




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Please give us a call at 956.928.1111 or email us at invest@capitalinsiders.financial




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