The United Kingdom remains Europe’s most established jurisdiction for private capital activity. For new private capital firms launching their first fund (be it a venture, growth, buyout or credit fund), gaining regulatory authorisation and establishing a compliant operating structure are critical foundational steps. While the UK regime offers proportionate routes for smaller firms, launching a fund requires an accurate understanding of the financial regulation, investor marketing rules and fund governance expectations.
We outline the key licensing process, post-authorisation obligations and compliance issues for new firms in the UK private capital market below as a starting point for firms’ discussions with their legal advisers.
Regulatory Status and Fund Structure
UK-based private capital firms will often fall within the definition of an Alternative Investment Fund Manager (AIFM) under the EU-derived Alternative Investment Fund Managers Regulations 2013. These rules apply to firms managing closed-ended investment vehicles, including private capital funds, that raise capital from multiple professional investors for pooled investment purposes.
The most commonly used regulatory classification for a new firm is as a “Small Authorised UK AIFM”. This applies to firms managing assets below £500 million across unleveraged, closed-ended funds. This status provides access to the UK investor market with reduced reporting burdens relative to full-scope AIFMs.
Most private capital funds are structured as limited partnerships, with the managing entity (the General Partner usually appoints an AIFM) being a regulated entity. Incorporation of the fund management company and limited partnership fund vehicle is done through Companies House, and firms typically appoint third-party legal and compliance advisers to assist with the fund’s structuring, tax status and regulatory readiness.
FCA Authorisation and the Application Process
Authorisation or registration with the Financial Conduct Authority (FCA) is effectively a prerequisite for private capital firms in the UK. Firms must apply via the FCA’s Connect system. This includes submitting:
- A business plan outlining the fund’s investment strategy
- Details of governance arrangements, compliance systems and key personnel
- Financial projections demonstrating adequate resources
- A programme of operations describing how the fund will be managed
- Policies covering anti-money laundering (AML), risk management, and conflicts of interest
The FCA also requires identification of individuals holding Senior Management Functions (SMFs) under the Senior Managers and Certification Regime (SMCR), including SMF1 (Chief Executive), SMF16 (Compliance Oversight) and SMF17 (Money Laundering Reporting Officer).
Application review typically takes three to six months though may vary. The FCA assesses the firm’s ability to meet minimum regulatory standards, its internal controls, and the competence and integrity of those responsible for management.
Post-Authorisation - Operating Within the Regulatory Framework
Once authorised, firms must comply with ongoing regulatory obligations. These include:
- Capital and organisational requirements proportionate to the size and nature of the business
- Regular FCA reporting using the RegData platform, including annual updates and any material changes
- AML and financial crime controls aligned with the UK Money Laundering Regulations
- Governance standards required under SMCR, ensuring individual accountability and role clarity
- Investor disclosure through offering documents and ongoing reporting, especially where retail or high-net-worth individuals are involved under exemptions
BVCA Guidance and Resources
- Model Legal Documents: Templates for Limited Partnership Agreements, Shareholders’ Agreements, Articles of Association, and Subscription Agreements - Model Documents For Early Stage Investments
- Responsible Investor Toolkit: Guidance on integrating environmental, social and governance factors into investment processes - Responsible Investor Toolkit
- BVCA Policy & Technical Updates: On carried interest structures, UK tax considerations and fund accounting principles
Marketing and Investor Communications
Firms seeking to raise capital in the UK must comply with the financial promotion rules set out under the Financial Services and Markets Act 2000 (FSMA). As a general rule, marketing communications may only be made to certain categories of investors, including:
- Investment professionals and institutional investors
- High-net-worth individuals or sophisticated investors who self-certify under FCA-prescribed criteria
- Existing LPs or prospective LPs with whom the manager has a pre-existing relationship
FCA Oversight
The FCA holds supervisory oversight of smaller firms (as well as larger ones), including first-time fund managers. Areas of regulatory focus include:
- Valuation and disclosure practices in illiquid asset strategies
- ESG claims and substantiation of sustainability credentials
- Conflicts of interest, particularly around co-investment and firm remuneration
- Cybersecurity readiness and operational resilience
Essential Resources and Official Guidance
- FCA: Apply for Fund Authorisation
- FCA: Connect Online Portal
- FCA: Senior Managers and Certification Regime Overview
- BVCA: Model Legal Documents and Industry Guidance
- BVCA: ESG and Responsible Investment Toolkit
- GOV.UK: Alternative Investment Fund Managers Regulations 2013
- HM Treasury: UK Money Laundering Regulations
Model Documents For Early Stage Investments
Industry-standard legal documentation for investors and entrepreneurs
Responsible Investor Toolkit
This guide provides a high-level summary of how an investor can build and implement an ESG Strategy, the key elements to consider, and signpost tools and best practice guidance to support its development.