Navigating the private investment funds roadmap

There is no single definition of what a fund is as it will depend on the jurisdiction and regulations under which the fund is established.

However, the common characteristics of a fund are that investment is pooled together into a form of collective ownership and that the management is outsourced to a fund manager. Funds are an investment rather than an operational vehicle - the aim is to give investors a return on their investment.

It can feel overwhelming navigating the private investment funds universe. Use the guidance below as a starting point and find answers to some key questions around starting a fund.

Key questions and considerations:

Who are your target investors?

  • Type of investors (e.g. pension funds, high net worth individuals, family offices, finance institutions, sovereign wealth funds);
  • Location of investors (UK, Europe, US, Rest of World);
  • How many investors are you going to target?
  • Do you have a cornerstone or anchor investor?


How are you going to target your preferred investors?

It is important to have a strategy in place as early as possible. There are rules around who, where and when a potential investor can be approached. Falling foul of these rules could have serious consequences in the future and so it is important to map out the approach early in the process.

What is your investment strategy?

  • This could be in real estate and, for example, focused specifically on student accommodation, PRS/BTR, care homes, retail, logistics, industrial, office. Within that it is then important to consider whether the fund will focus on ‘Core’, ‘Core+’, ‘Value add’ and/or ‘Opportunistic’ type investments.
  • The fund may be a private equity with, for example, a specific focus on large/medium/small companies in a particular sector like tech, biomed, fintech etc.

Investors like to see a clearly defined investment strategy that fits squarely within the experience and expertise of the fund manager.

This will have an impact on structuring (see below).

The answers to the below questions will shape analysis of what regulatory permissions need to be obtained or amended to carry out the management and marketing of the fund:

  1. Where will the fund be set up and where will it be managed from?
  2. In which jurisdictions will the fund be marketed?

Consideration should be given to which third party service providers will be required to comply with relevant laws and regulations (for example administrators, auditors, operators, depositories, custodians)?

The structure and domicile of a fund will be driven primarily by:

Location of the manager.

The location of the manager not only has practical implications in terms of operation infrastructure. Law and regulation require a level of substance in the relevant entities to ensure that they have not been set up solely to avoid paying tax (note OECD/G20 Inclusive Framework on BEPS).

Location and type of investors.

This predominantly comes down to tax. Certain structures will be more attractive to certain types of investors in different jurisdictions.

The most common fund structure is the limited partnership as this is tax transparent and therefore the investor is taxed on the distributions from the fund rather than the fund itself being taxed. This does not work for everyone. A different vehicle may be required for the fund or it may be most appropriate to set up a feeder fund or a parallel fund to accommodate the requirement of certain investors.

There are other legal and regulatory reasons to favour one structure over another depending on where investors are located. For example, it would not make sense to set up a fund structure in the UK if you plan to target only US investors.

Another factor to consider is familiarity. An investor will likely be happy to invest into a structure that it has invested into before. Entering into a new type of structure carries an additional layer of legal, tax and financial analysis which at best will delay any potential investment and at worst will put them off investing.

Location of the assets.

A fund’s assets may be located in one country or across multiple countries. Again, tax will be a primary driver in deciding which fund and holding structure will be the most efficient to make investments, manage the investments and receive returns.  There will be other factors to consider including local legal and regulatory requirements as well as the practicalities of managing the assets which may favour one structure over another.

The documentation can be split into two main areas:

Marketing and other initial documents:

  • Term sheet which sets out the high-level terms.
  • Marketing presentation and teaser.
  • Private placement memorandum (PPM) (this is also known as an information memorandum (IM)).
  • Service provider engagement letters (for example for lawyers, accountants, auditors).
  • Due diligence questionnaires (together with non-disclosure agreements).


Core fund documents:

  • Fund constitutional document (for example limited partnership. agreement or trust instruments).
  • Fund management or advisory agreement.
  • Subscription agreements for investors (including various annexures to cover AML/KYC requirements).
  • Side Letters with investors.

The terms of the fund will depend on the type of fund but the core principles of the terms follow the themes of alignment of interest, transparency and governance issues. The key terms typically include:

  • Investment strategy. What is the purpose of the fund and what are the parameters and restrictions for investments made by the fund (for example, type of assets, location of assets, size of assets)?
  • Closings. Will additional investors be admitted to the fund? If so, how will the interests to be equalised so that investors are not disadvantaged by when they made their investment?
  • Investment period. How long will the fund be making investments?
  • Term. What is the life of the fund and how can the life of the fund be extended? Can the fund be terminated early for any reason?
  • Drawdowns. What is the frequency and notice periods of when investors’ money will be called for?
  • Defaults. What happens if an investor fails to provide funds it has committed (or if it makes any other type of breach)?
  • Borrowing. What are the restrictions on ability to borrow?
  • Key Persons. Are any people key to the success of the fund and what happens if they leave?
  • Investor rights. What matters require the consent of investors and what are the thresholds?
  • Investor oversight. What oversight do the investors have (for example via an advisory committee) and what are the reporting requirements?
  • Fees. What is the level of management/advisory fees and is there any performance fee/carried interest?
  • Distributions. How does the “distribution waterfall” work?
  • Accountability. Can the fund manager be removed? If so, for what reasons and how?
  • Transfers/redemptions. What is the ability for investors to transfer or redeem interests in the fund?

Want to know more? 

If you have any questions or would like support with launching a fund, please get in touch.

Key Contacts