Forming a Mini-Fund For Friends & Family to Co-Invest Through

Question

I work for an investment and development shop and can participate on the LP side of our deals as much or as little as I'd like outside of my typical compensation structure, which includes a defined share of the GP entities.

The vast majority of my friends do not have the funds required to meet the minimum investment for most of what we do on their own, but, because I don't have to meet minimums and can invest really any amount I'd like, I'm thinking about setting up a mini fund through which my friends and family could invest in our deals in smaller increments.

mtnmmnn · Accepted Answer

Are you trying to get your friends and family to co-invest without paying fee or carry or just create a vehicle (FoF) that would allow them to get over the minimum size and invest alongside other LPs? I would start by checking your fund documentation as it relates to co-investments. Generally speaking, there are heavy restrictions on the ability to co-invest without paying the usual management and performance fees. At my fund, I am limited to investing my own funds as well as my wife, that's it and I think that's pretty standard.

mtnmmnn · Answer

Not necessarily, you only need to be accredited if you invest directly, but it's not  if you invest through an accredited vehicle (ie. a Fund of Fund or other structure). A corporation or partnership is considered an accredited investor as long as it has $5mm in assets so it's not hard to get around the issue. It's possible to get a smaller vehicle accredited, but I am not sure of the cost / complexity.

zacksc11 · Answer

You're going to run into Investment Company issues and you may have to register as an IA, there are signficant securities implications too if you're raising capital from non Reg D investors,  Remember just because the securities are not registered with the SEC doesn't mean they don't have to abide by SEC rules.  I ran into this a lot with EB5 capital raising but there we're protected both by Reg S and Reg D, but nonetheless the ICA issues were paramount to circumvent as it's expensive to register and be monitored as an RIA.

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Forming a Mini-Fund For Friends & Family to Co-Invest Through

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Forming a Mini-Fund For Friends & Family to Co-Invest Through

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