Setting Up Your Own Investment Fund 2026: Legal Options for Managing Client Money at a Glance
Anyone wanting to build their own asset management business or a small fund faces a dense set of rules in the DACH region: BaFin, FMA, FINMA. Why this regulation exists, which legal structures are available internationally – and where the limits are, especially with the often-cited «reverse solicitation».
- ✛Supervision depends on where investors are resident, not where the fund is domiciled.
- ✛Actively soliciting German retail investors without a licence is a criminal offence under Section 32 KWG.
- ✛Reverse solicitation is a narrow exception, not a business model.
- ✛The BVI Incubator Fund allows up to 20 investors and USD 20m in assets.
- ✛A cheap licence without banking access does not solve the practical problem.
Why managing other people's money is regulated
This article does not replace legal advice from a lawyer specialised in financial markets and investment law. Managing third-party money without the required licence is a criminal offence in most jurisdictions.
Anyone managing other people's money has a considerable information advantage and de facto control over their assets. Historically, precisely this constellation has caused the largest investor losses – from Ponzi schemes to fraud at supposedly reputable managers. Licensing requirements, auditors, depositaries and reporting obligations aim to offset this information asymmetry.
That strict rules make market access harder for small, reputable providers is an internationally recognised tension. For planning purposes, however, what matters is: the regulation exists and is backed by criminal penalties. The question is not how to «circumvent» it, but which legal structures and exemptions are actually available.
Where supervision applies: investor residence, not fund domicile
A common misconception: a fund in an offshore jurisdiction makes domestic supervision irrelevant. This is not the case. German, Austrian and Swiss supervisors primarily look at where the investors are located – not where the fund is registered.
Anyone actively soliciting German retail investors from Germany for an offshore structure is, under Section 32 KWG, generally conducting unauthorised financial services – regardless of the company's seat. Only the interplay of fund structure, investor residence and distribution channel determines legality.
Reverse solicitation: a narrow exception, not a business model
With reverse solicitation (passive freedom to provide services), an investor contacts a provider outside the EU on their own initiative and unsolicited – who may then, under certain conditions, act without a local licence.
European supervisors, including ESMA, have interpreted this exception increasingly narrowly for years and assess the overall context, not just who made contact first. If a brand, blog, social media presence or track record is systematically built to prompt investors to make contact, this can be treated as active, indirect investment brokerage – even if the last email formally came from the investor.
Reverse solicitation is a case-by-case exception for investors who genuinely approach a provider unsolicited – not a sustainable foundation for a business model systematically targeting EU clients.
Structures at a glance
Depending on capital volume and ambition, different structures come into question. The information is based on publicly available sources; investor and volume limits may change and should be verified by specialised local lawyers.
Managed account / PAMM via a regulated broker
Each investor opens their own account with the broker and grants a limited power of attorney for trading. The manager never has direct access to the funds. In Germany, commercial asset management nevertheless still requires a licence – the liability umbrella model exists for this, where you attach yourself as a tied agent to a licensed institution.
BVI Incubator Fund
A lightly regulated British Virgin Islands structure for fund managers at the start of their career: a maximum of 20 «sophisticated private investors» with a minimum investment of USD 20,000 and fund assets of up to USD 20m. An auditor, external fund administrator and depositary are not mandatory. The structure is time-limited (usually two to three years) and must then be converted.
BVI Approved Fund
The follow-on structure: assets up to USD 100m, unlimited duration, with a mandatory external fund administrator. An auditor remains optional.
Other structures
Internationally used options include the Bahamas SMART Fund, the Cayman Islands SPC (Segregated Portfolio Company) for institutional volumes, the Malta Professional Investor Fund (PIF) as an EU structure with passporting, and the Estonian Small Fund Manager for illiquid asset classes. Each has its own limits, reporting and substance requirements.
Even the cheapest offshore licences – such as St. Vincent and the Grenadines, the Seychelles or Vanuatu – usually do not solve the practical problem: banks and brokers require robust substance before opening an account for client money. A licence without bankable account access is often worthless.
Germany: why the KAGB is unattractive for small funds
Anyone in Germany wanting to pool other people's money beyond a private circle of friends generally needs authorisation or registration under the Capital Investment Code (KAGB). Relevant for smaller managers is the registered capital management company («mini-KVG»): lower requirements than a fully regulated KVG, but usually only professional and semi-professional investors – the latter typically with a EUR 200,000 minimum investment. Realistic setup costs are EUR 30,000–50,000, with ongoing costs of around EUR 20,000 a year.
Exception: private investment club (GbR)
If all investors remain equal partners with genuine voting rights, the number of partners stays below 50 and the volume below the thresholds, and there is no public advertising for members, the model falls outside the KAGB licensing requirement. Note the unlimited personal liability of all partners – a real risk with leveraged strategies.
Cost and complexity comparison 2026
Rough guide values based on publicly available information – verify before deciding:
| Structure | Setup (approx.) | Annual (approx.) | Eligible investors |
|---|---|---|---|
| Germany, registered KVG | EUR 30,000–50,000 | EUR 20,000 | Mostly (semi-)professional, usually from EUR 200,000 |
| Estonia, Small Fund Manager | EUR 20,000–30,000 | EUR 10,000 | Professional investors, exceptions possible |
| BVI Incubator Fund | USD 10,000 | USD 5,000–8,000 | Max. 20 (from USD 20,000) |
| Managed account via liability umbrella | low | Broker/umbrella fees | Broader, depending on institution |
What to check before setting up
- ✛Where are your investors actually located? This determines which supervisory regimes apply – regardless of fund domicile.
- ✛Active or genuinely passive client acquisition? Do not base distribution on an interpretation of reverse solicitation that will not withstand scrutiny.
- ✛Is there realistic banking access? A licence without an account for client money is practically worthless.
- ✛How robust is your track record? Cheaper structures such as the BVI Incubator Fund are meant as a transition, not a permanent solution.
- ✛Who is liable in a dispute? With a GbR, unlimited personal liability is a key factor.
How SWICOR supports you
Our focus is on the US company structure – for example if you want to use a US LLC as the vehicle for an investment club or managed account structure (see also US Corporation, LLC and LP and Florida LLC). For the regulatory assessment – whether and where a licence is required and how robust a reverse solicitation structure is – we refer you to specialised financial markets law firms.
Set up your vehicle on a solid basis from day one.
Company formation USA →Conclusion
- ✛Managing other people's money is strictly regulated – for investor protection, not merely as a barrier to entry.
- ✛Investor residence, not fund domicile, determines the competent supervisor.
- ✛Reverse solicitation is a narrow exception and does not protect a marketing strategy targeted at EU investors.
- ✛Graduated, reputable structures exist internationally – from managed accounts and the BVI Incubator Fund to institutional vehicles in Luxembourg or Ireland.
- ✛A cheap licence without banking access does not solve the practical problem.
Frequently asked questions
Can I simply set up an offshore fund and serve German clients?
Not without further ado. German supervision looks at investor residence. Actively soliciting German retail investors for an unlicensed foreign structure is generally a criminal offence under Section 32 KWG.
Is reverse solicitation a reliable way to avoid EU regulation?
No, not as a systematic business model. Supervisors assess the overall context of client acquisition and can treat a targeted marketing strategy as active brokerage.
What is a BVI Incubator Fund?
A lightly regulated British Virgin Islands fund structure for up to 20 investors and a maximum of USD 20m in assets, without a mandatory auditor or depositary – designed for managers at the start of their career.
Why is the KAGB often unattractive for small funds?
Because even the registered «mini-KVG» involves high setup and ongoing costs and usually only admits professional investors with a high minimum investment.
Is a private investment club (GbR) a good alternative?
For a small, genuinely private circle with real voting rights it can be practical – but with unlimited personal liability and a strict advertising ban.
Your fund structure on a solid foundation
We set up the vehicle and refer you to specialised financial markets law firms for the regulatory review.
This article is a general analysis and does not replace individual tax or legal advice. Regulations change; the information reflects the status at the date of publication.