Structural Considerations for Launching Your Private Fund

Independent investment advisors venturing into the domain of private funds must consider an array of structural considerations. 

Setting up a private fund necessitates creating appropriate legal entities. Commonly, private funds opt for structures like limited partnerships (LPs) or limited liability companies (LLCs). In an LP, for instance, there must be a general partner who manages the fund, while investors come on board as limited partners.

The formal documentation that delineates the relationship between the fund managers and investors is critical to the fund’s operation. For a limited partnership, this is typically encapsulated in a Limited Partnership Agreement (LPA), which outlines vital legal terms such as capital calls, profit distribution, management fees, and terms concerning the withdrawal of limited partners. These documents ensure that all parties are clear about their roles, responsibilities, and benefits.

A private fund usually operates alongside a distinct investment advisor entity that furnishes investment advice. This entity, as well as any other management bodies associated with the fund, must be separately constituted. Each of these entities will have its own legal structure and accompanying contractual agreements that govern their operations.

Raising capital is a nuanced aspect of fund management that requires careful consideration of the investment focus—such as the types of assets and the geographical emphasis of investments—and leveraging the credentials and track records of the founders. Fundraising must adhere to federal and state securities laws, typically under exemptions such as Rule 506(b) and Rule 506(c) of Regulation D, which allow for raising capital without the need for registration under the Securities Act.

These are just a few of the structural considerations when it comes to setting up a private fund. 

Gridline provides the quickest and most seamless solution for launching an institutional-quality fund. It manages all the aspects covered above, from legal and fund formation through capital raising and reporting over the vehicle’s life, while providing an exceptionally high degree of visibility into fundraising, investment performance, and cash flows.