KYC and AML
The identity and source-of-funds checks a fund runs on every investor.
Administrators collect identity documents, ownership details and information on where the money comes from, and screen against sanctions lists. Institutions will also review the fund's own controls.
Checks typically cover the investor's identity, its beneficial owners above a set threshold, often 25 percent, sanctions and politically exposed person screening, and the source of funds and wealth. Higher risk investors, such as those from certain jurisdictions or with complex structures, get enhanced due diligence.
Most funds outsource KYC to their administrator, but the manager remains responsible for its investors. Institutional LPs also ask about the fund's own anti-money laundering policies in the DDQ.
Worked example
A family office invests through a holding company owned by three trusts. The administrator collects the company's formation documents, identifies the beneficiaries holding 25 percent or more, screens each against sanctions lists, and asks for evidence of source of wealth. It takes two weeks, so the GP sends the checklist a month before the next close.
Common questions about KYC and AML
Why do KYC checks delay fund closings?
Because each investor, especially entities with layered ownership, must provide documents on identity, ownership and source of funds, and any gaps must be resolved before the fund can accept their money. Sending checklists early avoids most delays.
Who performs KYC for a private fund?
Usually the fund administrator, under policies approved by the manager. The manager remains responsible for knowing who its investors are.