First, you need to document your business strategy. To do this, you need to research and study how other investment fund companies operate. Think about your goals and think about how you’ll know if you meet those goals. Your research should also involve the type of funds that you want to focus on. Why? Because your investors will want to know where their money is going and what they will get out of it.
Next, you need to write your business plan and you need to document how your business will run. Your business plan should include your cash flow expectations and the time in which you plan to raise capital and exit from those investments. Funds typically have a life of around 10 years, but you should use your good judgment to determine your timelines. Your business plan also needs to address marketing. Your operations plan should include accountants, attorneys, and proven consultants who can help you grow the portfolio. You should also consider a team to protect you (along with your clients and their information) from cyber-attacks.
Obviously, you need to name your firm and the fund. You must decide on the roles everyone in your business will play and what their responsibilities will be. All of this needs to be put into your operations plan.
Once you have your operations plan, you need to consider the legal structure of the business. You might consider a limited partnership or a limited liability firm. If you’re the general partner, you’ll have the right to decide which investments will make up the fund. Investors will be limited partners and they won’t have that right. They will only be accountable for their losses. You, as the general partner, will be responsible for any additional losses. You should work with a lawyer to write up your operating agreement. Make sure that you have any and all required licenses from the SEC and from your state.
Consider a reasonable fee structure. An average fee for private equity managers is around 2% (annually) of the committed capital received from investors. If you’re new to investing or fund management, you may end up taking less in way of a fee. You also need to consider carried interest and a hurdle rate. However, as you consider your fees, you need to think about compliance, risk, and valuation of the fund.
Start raising capital. You need to be prepared to invest into your own fund. Why should anyone else invest in your fund if you don’t? You might want to have your fund managers who have a track record of success also invest. Make sure that your marketing strategy is well-suited to your target market.
Setting up a private investment fund can be a lot of work. It’s not without its risks. One of the best things that you could do is talk with a lawyer so that you can make educated decisions related to how you manage your fund. If you’d like to talk with an attorney about your investment fund, consider. We are a legal marketplace that has some of the highest quality securities / fund formation attorneys across the country. All legal projects come with end-to-end project management, are backed by a satisfaction guarantee and are up to 60% less than traditional law firms.