How To Create a Private Equity Fund

A private equity fund is a good way to invest your money. Though the investment is locked for 10 years or so, a private equity fund brings a good value to your investments. This is true even compared to the fact that public equity gives your investment more freedom. So if you decide to create a private equity fund, here's how you can do it:

  • Enter into a partnership. Take note that private equity funds are all structured in the form of a partnership. The first partner, or the general partner, is the one who will operate the fund. On the other hand, the other partner, or the investor, is the one who provides investments and has no power over managing the funds. Seek help from a business attorney to help both of you to draft the agreements of the partnership. Make sure that both parties understand every detail of the investment. Take note that this partnership may get as many members to operate granted that it falls within the private equity fund agreement.
  • Identify the partnership's investment guidelines. All of the investment funds must have investment objectives of their own. For instance, some investment funds can be specified for buying industries such as health care or technology only. Other funds can be defined to support buying companies in a specific region or companies with marked sales revenue.
  • Solicit funds. The capital of the private equity fund will only come from the funds brought in by different investors. Set a minimum investment in your private equity fund. Take note that the most common minimum investment in businesses like this is $250,000. The minimum investment can be more than this standard depending on company to company. Make sure that you collect funds from accredited investors only as defined by the Securities and Exchange Commission. It is best if you can get a list of contacts of the wealthy investors in the business scene. Or, contact different investment advisers to help you find leads for the best investors. This is true especially for investment advisers that personally work with accredited investors that are of high net worth.
  • Acquire companies. Now that the private equity fund has money from clients, it is time to acquire new companies for the portfolio. Check out good leads to see companies that are best to be bought. Seek help from business brokers or exit planning advisers whenever possible. Other great resources in finding potential companies are CPA firms and also business attorneys.
  • Distribute profits. All of the defined profits of the private equity fund must be distributed to all its investors. This can be done quarterly or annually depending on the agreements drafted for the partnership. The more the profits are of the private equity fund, the more money each investor gets.

The success of your private equity fund will depend on how well you have created it. Since a lot of people can be affected by the success and failure of the firm, it is necessary that you create the firm successfully. Refer to the above-mentioned steps so you will be guided accordingly not only in the creation of the private equity fund but also in its successful operation.


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