Providing seed money for a fund
A fund manager provides all of the seed money for a new fund upon inception. Until such times as other investors invest in that fund, the fund manager would likely control that fund. This is because the fund manager has the power to direct the relevant activities of that fund, exposure to variable returns from its involvement with the fund, and the ability to use its power over the fund to affect the amount of its returns.
As third parties invest in the fund and dilute (or acquire) the fund manager”s interest, this would likely result in a re-assessment of whether the fund manager has control. As the third parties invest, they are likely to obtain rights to direct the relevant activities (that is, the third parties will gain power). In many cases, analysing the facts and circumstances may indicate that the fund manager is acting as an agent of those third parties (as discussed at 6 above). Accordingly, the fund manager would no longer have control and would de-consolidate the fund.