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WHAT ARE PARALLEL FUNDS AND HOW DO THEY WORK?
Parallel funds are a type of investment vehicle that offers an effective way to diversify your investment portfolio. These funds are structured as a master fund that invests in multiple sub-funds, each of which has its own investment strategy and portfolio of assets. This fund structure is frequently used by institutional investors, but it’s getting on-demand among high-net-worth individuals and family offices.
The master fund invests in each sub-fund in proportion to its investment goals and risk tolerance. The sub-funds are managed by independent investment managers who have a high degree of expertise in their respective areas.
The Benefits and Risks of Investing in Parallel Funds
Parallel funds are flexible. Investors can choose to invest either in every sub-fund or only in a preferred few. Moreover, investors can adjust their allocation to the sub-funds over time based on changing market conditions or risk preferences.
These funds are also tax efficient. As each sub-fund is a separate legal entity, investors can sell their interests in one sub-fund without triggering a taxable event on the other sub-funds.
What’s more, these funds allow investors to diversify their portfolios by investing in multiple funds at the same time. A single investment with the help of efficient GP Accounting in Private Equity Funds can be spread across several asset classes, sectors, and locations, decreasing the risk of over-exposure to any certain asset type.
The ability to leverage the expertise of an experienced asset management team is another reason to invest in these funds with Thales Capital. Parallel funds increase the chances of higher returns and provide investors with peace of mind, knowing that their alternative investments are being managed by experts.
Parallel Fund Structure and Types of Investments
Similar to a Capital Risk Fund (SICAR), there are many types of parallel funds.
Firstly, sidecar funds are set up alongside the main fund and invest in the same assets as the main fund. Their key benefit is greater flexibility and potentially lower fees.
Another type of parallel fund is the feeder fund which invests in the main fund but is set up in a different country or jurisdiction. Feeder funds are commonly used by international investors who want to invest in a fund that is located abroad, as they allow investors to minimize currency risk and potentially take advantage of different tax laws.
Parallel Fund Performance and Risks
One of the primary risks of these funds is that they are usually unregulated, meaning that they aren’t subject to the same regulatory oversight as their traditional alternatives.
Moreover, they are often illiquid, so it can be difficult to sell your investment if you need to access your funds quickly. Unlike publicly traded investments, like stocks or mutual funds, parallel funds aren’t traded on an exchange, so selling your investment may require finding a buyer outside the fund.
Parallel Fund Management and Fees
Like with a Special Limited Partnership Capital Account, if you’re interested in integrating parallel funds into your investment portfolio, there are a few things to consider.
Assess your risk tolerance and investment goals. Parallel funds can offer diversification benefits, but they may not be suitable for everyone.
Understand the fees associated with parallel funds. Since you’ll be investing in multiple funds, the fees can add up quickly. Make sure you understand the fees and how they will impact your returns.