Fund Structuring

The structure of a fund is the way it is operationally, fiscally, technically, and legally incorporated. What is its legal status, governance, strategy, investment policy, distribution, type of investors and service providers.

A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors purchase shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. Mutual funds are served by a central administrator, transfer agent, management company, depositary, and custodian. They are in the big majority of cases open-ended funds.

A Fund of Funds (FOF) is an investment vehicle where a fund invests in a portfolio composed of shares of other funds rather than investing directly in stocks, bonds, or other securities. The strategy of investing in a fund of funds aims to achieve broad diversification and asset allocation where investors can get broader exposure with reduced risks compared to investing directly in securities. FOF have higher fees, as they hold in their portfolio other investment funds which fees are to be cumulated to the FOF ones. A fund of funds, also referred to as a multi-manager investment, gives small investors broad diversification to hopefully protect their investments from severe losses caused by uncontrollable factors such as inflation and counterparty default. Portfolio managers use their expertise and experience in identifying the best selection of funds to invest in, based on their past performance and profitability.

Private equity funds are closed-end investment vehicles, which means that there is a limited window to raise funds and once this window has expired no further funds can be raised and shares allocated. These funds are generally formed as either a Limited Partnership (“LP”) or Limited Liability Company (“LLC”). They can be self-managed or managed by an investment manager (AIFM). In the private equity world, there is an important debt part, which determines the seize of the multiples. A multiple can be the paid-in capital (PIC), distributed to paid-in capital (DPI), residual value to paid-in capital (RVPI), or total value to paid-in capital (TVPI).