Hedge Fund Strategy & Steps to develop a Private Equity Fund
Private funds are investment vehicles formed to raise capital used to invest in a specific purpose such as; industry sector or geographic region, buy-outs, or any number of strategies. The funds are often “blind pools” where passive investors commit to investing a set amount of capital over time and trust the fund administrators to manage the funds successfully. This type of investment may be referred to by various terms like; Private Equity Funds, Alternative Investment, Hedge Fund, Venture Capital, and others. The potential for high risk and reward drives the complexity of these investment vehicles; making most a complex organizational scheme, riddled with regulatory and tax applications, and well thought out operational framework.
Complexity in Creation
Often times PE funds are established as multiple general and limited partnerships which are governed by written agreements. The agreements set forth such concerns as the term of the agreement, fee schedules, distributions, restrictions, and a number of other legal matters. The funds typically require a substantial investment from investors while giving the investor limited control and liquidity options, and are often high risk. We cannot emphasize enough the importance of seeking help from a professional with complex legal and tax strategy experience when establishing private funds.
Where to start and basic steps
Legal & Tax Considerations: Before a fund can be established founding members must make a thorough analysis of legal and tax strategy. Options available to the fund will be contingent in part on the purpose of the fund and how it is structured.
A typical design may look like the one in this chart, or it may be much more complex. Often times pass-through entities are created and several people or firms are involved in facilitating the investment objective such as a Fund Sponsor, General Partners, Investors, and Advisors.
Once the structure is decided upon, additional related tasks and decisions follow:
- Regulatory Registration (SEC & FINRA)
- Structuring Regulatory Compliance Framework (Procedures and policies)
- Operational Infrastructure (Staff, Management, Offices, Outsourced services)
- Selecting Service Providers (Investment analysts, Clearing & Custody, Administration)
- Capital Raising Activities (Marketing plan, Investor Relations, Advisor Responsibility)
It is as important to us as it is to you that your new venture in Hedge Funds be successful. Consulting with our professional team before launch will greatly improve the chance of success. We’re happy to work directly with Partners, Attorneys, CPAs, Investors, and other Stakeholders in developing a sensible strategy that adds value through the entire lifecycle of the fund.
To learn more about RND Resources and our Private Equity Services, reach out to us at (818) 657-0288 or submit the contact form below.