Fund sponsors must navigate two separate regulatory games: securities rules (SEC) and tax rules (IRS). Within those rules, you have strategic levers like zero-management-fee structures, preferred returns, and tax-efficiency tactics that give you competitive edge. Lawyers ensure compliance; strategists craft the advantage.
Chapters
Boom, people. Welcome back. So, I want to dive in and talk about the SEC or working with regulators around the world. Okay? A few different nuances and things that to pay attention to as you dive into this world. And this will happen for international investors, domestic funds, etc. But I want to give you an analogy. And anyways, this has helped me a lot when approaching thinking about regulations and what we're doing. All right. We're down on the iPad here. The analogy I want to give you is with American football. And here's our— I'm going to draw out a little field for us. OK? So here's our field. Here's our end zones. We got our field. Here's our field goal posts. OK? So here we are. My nice little drawing. All right? Now, if you came and watched American football for the first time, you're from a different country, you'd never seen this game before. You walk into a stadium, you start watching. I would venture that you're going to be pretty confused. About what's going on. I mean, what's a 4th down, a punt, offsides, holding? Why is there 3 points for a field goal? Why is there an extra point for 1 point? Why is it 6 points when you score a touchdown? What's a safety? Like, what are all these? Why is— like, it doesn't make sense. Okay? And maybe if you just sat down there by yourself, you might watch and be utterly confused, right? Now, if someone who was an expert At American football, a coach, whatever, came and sat next to you and taught you about football, told you the rules, the plays, why you would run a handoff or a passing play, or you'd— on 3rd and long, this is what you do. I bet with even 30 to 40 minutes, you could understand the game of football on a deeper level. OK? And we all know that experts help us learn faster. But also, I feel like you could also maybe even develop Some strategy within the game. Interesting. You know, if you went and talked to a referee, ref, how do you even spell referee? Referee. There we go. You guys try spelling in front of a bunch of people. Okay, it's kind of hard. Referee. There we go. You want to talk to a referee? They're going to tell you just the rules of the game. Here's the lines. Here's, you know, it's 6 points when you score. There's an extra point, 3 points. They should tell you the rules of the game. But a referee may or may not tell you about strategy. And again, this analogy, I'm going a little long here, is I believe the same with regulation and/or the SEC. If you go talk to a lawyer, a lawyer, which they're great, will tell you the rules of the game. They will tell you where the lines are, where the out, you know, the box is, the end zone. They're going to tell you all these things. However, lawyers, in my opinion, sometimes aren't the best at strategy. Hey, what should I do if I'm down 7 points and it's a 3rd and 15? What should I do on a, you know, 2nd and 10? What should I do on, we're in there, we're in the red zone. It's 3rd and short. What are we doing there? Okay. Strategy. Is way different than just the rules. And what we'll share with you in this course and the videos and stuff is the strategies that we've seen within the SEC. And these aren't loopholes. What has happened is the SEC has given us a box. They've given us a field to play in. They've given us great rules. Like up above here, you know, Reg D, 506, 506, 3 funds, 3 funds. We've seen all like this kind of stuff. You guys will see in a bunch of these videos. They've given us rules, but within those rules, there's a lot of stuff we can do for strategy. And some of these, if we tweak them the right way, will help us raise capital faster. They'll help us to be more efficient with what we're doing. They'll help us create a stronger edge inside of our fund. And so, I think it's healthy to understand there's a difference between what your lawyers will just teach you about the rules of the game and then strategy within those rules. The same thing is true with like taxes. You know, there's a big difference between someone like a CPA who will file your taxes and a tax strategist. Right? Big difference. And if you don't have one without the other, you know, you need the CPA to file them correctly, but you also need the strategist to tell you how to be efficient with your taxes. So, on that note, with all regulators and all things, there's 2 different camps or groups. Now, the 2 different camps are for any fund. This could be international or domestic. So, you're going to be looking at the securities organization. In the United States, that's the SEC. In other countries, it's modeled usually after the SEC. And the other one is the tax people. OK? In the United States, that's the IRS. So, when— if you're going to run a domestic or international fund or any time you cross a border, Just so you're aware, you now trigger not just one securities group, you're triggering securities and a tax group. You're triggering 2 securities groups and 2 tax groups. So, for example, if I'm in the United States and I'm raising money out of Spain, but I'm investing in the United States, I'm now triggering the United States SEC and also Spain's version of the SEC. I'm also triggering the United States IRS or tax, and I'm also triggering Spain's IRS or tax. Okay? So, just be aware of that whenever you cross a border. And then within here, when you're thinking about your fund, it's good to think in the sense of the 2 games that you're playing and maybe together is the securities game and the tax game. And there's some funds that really lean into being very tax efficient. I've seen this with real estate funds. They have a lot of depreciation. I've seen this with oil and gas funds. They get good credits or energy funds that get really good tax efficient Things that they can bring to their investors. Additionally, with securities offerings, I've seen people, you know, inside the SEC, the way they structure their fund. They go out and say, hey, we're going to charge a 0% management fee. We're going to charge a, you know, be more favorable to investors. We're going to do an 8% pref. We're going to do all these different preferred returns. We're going to make sure you guys are paid back in full before we make money anyways. Aligning incentives. Again, these are some of the strategies that you can have within the rules of the securities and tax groups. But in this video, I wanted to explain just the game. And you'll have future videos that'll explain more of this. But I want to explain where these things come from and how they look.
