Launching a fund involves eight stages, from structuring and internal arrangements to investor negotiations and post-closing tasks. Each stage addresses critical legal issues like compliance, documentation, governance, marketing restrictions, and regulatory filings.
Private capital fundraising remains a complex journey for any sponsor, especially for first-time fund managers. With the market's rapid evolution, new managers often find themselves navigating an increasingly dynamic landscape, from longer fundraising timelines to adapting to shifting investor expectations and regulatory changes. This makes the process of setting up a fund even more intricate, involving not only investor negotiations but also the complexities of closing and post-closing obligations. For first-time fund managers, the process can feel overwhelming, yet it also presents opportunities for growth and innovation.
In the latest edition of Proskauer’s New and Emerging Manager Fundraising Guide we break down the capital raising process into eight critical stages. By focusing on the key considerations that sponsors must address when launching a fund for the first time, this guide is designed to help managers navigate the current fundraising environment, turning challenges into valuable opportunities for both themselves and their investors.
Executive Summary
This manual outlines the legal and regulatory stages private fund managers must go through when launching their first fund.
Eight Stages to Launch a Fund Covered:
- Structuring – includes fund types and structures, U.S. regulation of fund managers, seed portfolios and warehoused investments, and more
- Terms and Conditions – includes carried interest, clawback/escrow, drawdowns, management fees, and more
- Marketing – includes placement agents, marketing materials, investor due diligence and investor qualifications, regulatory issues, and more
- Preparation of Fund Documentation – includes summary of key required legal redocumentation
- Internal Arrangements – includes summaries of key topics to be negotiate among internal team members, including carried interest/vesting, retirement/withdrawal, co-investment, and more
- Investor Negotiation – summary of how Proskauer can help manage complex, varying investor demands, due diligence and market expectations
- Closing – includes securing investor commitments, completing regulatory filings, and managing logistics for first and subsequent closings
- Post-Closing – includes finalizing agreements, notifying investors and regulators, establishing advisory boards, and preparing for investments
Key questions before you start include:
- What is the fund’s target investment strategy?
- What kind of fund structure (e.g., blind-pool, single asset, pledge) is your goal?
- What types of investors will you target?
- In what geographies will you make investments?
- Who will have ownership and control of the fund management entity?
To access Proskauer’s New and Emerging Manager Fundraising Guide, simply complete the form below, or reach out to a member of our industry-leading Private Funds team for further assistance.
Launching a First-Time Fund: FAQs
How long does it take to raise a first-time fund?
First-time fundraises typically take 12–18 months, but can be shorter depending on the circumstances. The timeline depends on how quickly capital commitments are secured and the responsiveness of investors during due diligence and negotiations.
What legal considerations affect the fund鈥檚 structure?
Key factors include investor profiles, investment strategy, and the tax residency of the manager. The structure must balance liability protection, regulatory compliance, and investor expectations.
What legal documents are needed to set up a private fund?
Core documents include the fund’s Limited Partnership Agreement, Private Placement Memorandum, Subscription Agreements and Side Letters. Depending on the structure, additional agreements may also be needed.
What are warehoused investments and how are they treated?
Warehoused investments are assets acquired before a fund’s first closing, often with manager capital. These are usually transferred into the fund at cost plus interest, and valuation details must be disclosed to investors.
What are the differences between a blind pool, a pledge fund, and a single-asset vehicle?
A blind pool commits investor capital upfront for manager-selected deals. A pledge fund lets investors opt in deal-by-deal. A single-asset vehicle funds one specific investment, often to demonstrate a track record.
What are the top legal risks first-time fund managers overlook?
Risks include breaching marketing restrictions, improper use of past track records, weak governance terms, inadequate documentation, and failing to meet investor qualification requirements like SEC or AIFMD compliance.
