How to Make Your Private Equity Fund SAFE – Capital Raising – Capital Raises

how do you lower the risk? How do you protect investors for your private equity fund? You want to raise capital to invest in whatever you want, and you want to make sure that investors are protected. Here’s what you need to know, and you want to make sure that you combine all these pieces and stick to the end so that you can actually have a game plan going forward.




So the first way is you just have to look at the fees, look at all the possible fees you can charge investors for managing a fund. You have to look at all the ways that you can charge investors and just try to reduce those fees if applicable. Usually a fund, you have a management fee and a performance fee.

Management fee is usually 2%. Performance fee… It depends. It could be 50 it could be 80 20 where 80% of the profits are shared with the limited partners or the investors, and then 20% is shared is given to you, but it’s usually dependent on your performance. If you hit, if you produce over 15% returns or over 15% internal rate of return, internal rate of return is just a metric for seeing how well your fund is performing.

But if you hit over 15%, some people say, Hey. I’ll split 70 30 where the investors will get 70 percent. I’ll get 30 percent. So 30 percent would be the performance fee in that case. Then some people say, oh, if it’s underneath. 15% internal rate of return. Then I’ll split the profit share. The profit share will be 80 20, where the performance fee is only 20%.

And then the investors would get the other 80%. So really, it’s dependent on your niche, like whether you’re doing hotels, or real estate, or multifamily, or you’re new or you’re old. But basically, you can tweak the management fee and the performance fee to see how much the investors would split. So you can do that to lower your risk.

And if you’re worried that, investors are more skeptical, you can just give them a higher performance fee. So that’s step number one. And you can also lower your management fee. So number two, another thing you can consider is, change the preferred return. So the preferred return is not actually a return.

It’s also called a hurdle rates and a preferred return just means if you make over that amount in annual returns, then the general partner will start getting their fees. So some people have it so that if the preferred return is eight percent. That means, what that means is that after your returns are greater than 8%, then the general partner, that being you, the person who owns the fund, would then start getting money from those investors from the performance and the management fees even.

How to Make Your Private Equity Fund SAFE – Capital Raising – Capital Raises

Some people have it like that. And then other people have it so that if the performance, if the prep return is underneath 8%, then that means that The general partner won’t get any fees. And so that’s a way of protecting investors to show that if somebody has to perform. So in other words, it’s a threshold after which the owner of the fund gets their fees.

If the owner of the fund doesn’t perform to a certain level, then they don’t get anything. So it’s a way to protect the investors because it shows that the person is incentivized to get a minimum investment, like amounts returned. Because if they don’t hit that amount. Then, the, they’re not getting their own fee, right?

And I’ll try to say this in another simple way. Basically, it’s like saying, Hey, for me to be in commerce class in university, I have to get over 80%. If I don’t get over 80%, then I get fired. Or I get, what is it, expelled or whatever. I get expelled from the class. But if I get over 80%, then I can stay in.

So similarly, it’s if you make over the prep return, then you get your fees. You can still run a fund, but you get your fees. And then if you get under it, you can still run a fund, but you lose your fees. And then the investors are just more secure because they know that… There’s quote unquote skin in the game and skin in the game just means that you win.

I win you lose. I lose So that’s pretty important So that’s the second way of de risking the fund a third way could be Doing the european style fund versus the american style fund. So the way that the european style fund works is You have somebody who in the European style fund, the investor will get their money first before the general partner does.

And it’s just the order by which the cash flows. And in the American style fund, the general partner, in other words, the person that runs the fund will get the money first before the general part, before the limited partners or the investors do. So America style. General partner first The investors last European style investors first General partner last and so if you want to really protect investors Then you can just give the investors their side first and before you get yours.

So that’s another way to de risk And then the last way could also be in a window throwing a bonus just to make sure you have experience on the types of deals that you’re doing. Because if you say that your fund is working on car washes, Then make sure you, and then you only have experience in car washes, make sure you only do car washes.

If you don’t have experience in car washes, then then you’re just taking a necessary risk, because there’s no track record of points at that. And if there’s no track record of points at that, then… You’re taking you’re asking investors to do something that you haven’t done before, which is more risk.

With all those four ways, basically, it’s just lowering fees, performance fee and management fee, then it’s making sure that the preferred return is higher, because the higher the preferred return, the less risk investors are taking, because they know that you have to perform to a certain level before you get anything.

And then afterwards, you can also consider the European style or making sure that the investors get their money as early as possible. And finally, you can also, make sure that you just focus on the things you have experience in and all those things are all obviously there are many more. And for example, people can even, make sure that the term of the investments is long.

Or they can even make sure the term of the investment isn’t too long because the longer the term of the investments, generally speaking, you kind of risk keeping their money in for a certain amount of time. There are different ways to tweak it and make sure that investors feel like they’re really de risked.

But overall, just make sure that you raise. You lower your fees, you decrease their risk by making sure that you have to perform a lot before you get a little. And if you just keep on doing that and just focusing on the things that you’re experiencing, you can make investors feel really comfortable to work with you and to invest with you.

Hey, if this is something that you’d like to see us help you do and get started, then just head to But if not, just check out the YouTube channel. We don’t bite. So you can learn more.

How to Make Your Private Equity Fund SAFE – Capital Raising – Capital Raises

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