The Long Game: Opportunity Zone Fund Formation Considerations and Planning for Success from Start to Finish

When forming an Opportunity Fund, from the very beginning, you need to be planning for each stage in an OZ investment’s life cycle:

  • the capital raise,
  • how and where to hold the invested capital,
  • timely deployment,
  • managing the assets,
  • maintaining Opportunity Fund status by satisfying the various regulatory tests, and
  • the exit — which for some, if not most, investors will be 10+ years out.

This long-term planning requirement is one of the features that makes Opportunity Funds distinct from traditional private equity investing, which enjoys much more flexibility in terms of how money is held and used, and generally has shorter horizons for its investments.

Are you prepared for the long haul of running an Opportunity Fund?

Within our Opportunity Zone Fund Administration Solution, JTC Americas, Formerly NES Financial, provides services that help with many of the steps listed above. Here is a quick breakdown of how:

The Capital Raise: When choosing a fund, investors place a high value on the fund manager’s willingness to protect their capital — and the best way to demonstrate this commitment is to partner with a third-party fund administrator who has defined best practices in security, transparency and compliance. Our clients find that their relationship with JTC Americas can be a powerful tool when marketing projects to prospective investors.

How and Where to Hold Invested Capital: JTC Americas can help you set up subscription, operating, and draw down accounts with our partner banks, ensuring security and audit readiness at every step.

Timely (and Secure) Deployment: The new regulations states that money invested into an Opportunity Fund must be deployed into the relevant project (business or real estate) within 31 months. That means that invested capital doesn’t need to be put to work immediately — nor, in many cases, should it be.

“Commingling investor funds with operating funds is a recipe for misconduct, whether intentional or accidental,” says Reid Thomas, Chief Revenue Officer and Managing Director at JTC Americas. “A responsible OZ fund manager will deploy invested capital into a project only as needed, and only in response to specific triggers. JTC Americas’ purpose-built draw down solution provides verifiable third-party oversight and handles all disbursement reporting at this crucial stage.”

Maintaining Opportunity Fund Status by Satisfying the Various Regulatory “Tests”: If your fund loses its legal status as an Opportunity Fund, your investors will forfeit their OZ tax benefits. It’s therefore crucial to maintain this status by documenting all relevant metrics. JTC Americas’ solutions provide comprehensive end-to-end tracking of funds through the decade-plus life cycle of the typical OZ investment, leaving you — and your investors — with greater peace of mind.

The Exit: When it comes to this stage, Thomas again urges caution: “Funds should carefully review the final regulations issued late last month for the handling of this issue. Particularly in limited partnership agreements, there have been questions around the exit that were not perfectly addressed under the first or second round of proposed regulations,” he says.

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Innovative Strategies for Tax-Advantaged Investing Webinar

A JTC Americas’ webinar
Wednesday, August 24th, 2022
2:00 pm — 3:00 pm ET

Register now to reserve your space!

Join us for a free webinar to learn how industry leaders are approaching 1031 Exchanges, Opportunity Zones, and other tax incentives in 2022.

Titled “Innovative Strategies for Tax-Advantaged Investing” the webinar will feature a panel of industry experts discussing how investment strategies are evolving, the future of 1031, and how other programs like Opportunity Zones can help you defer capital gains and build wealth. They’ll also be answering questions from attendees so you can ask about specific situations and get the facts from those in the know.

This is a perfect opportunity to learn about the current state of 1031 from industry experts, so reserve your spot today!

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