Co-invest through a sister - [email protected]

Hello WSO,

My sister works in PE & with a recent promotion as VP she has been offered an option to co-invest. I'd like to invest through her with some of the spare cash I have ($100K initially in lump sum + up to $50K annually afterwards). I'm unsure what'd be the best way to do so while 1) avoiding unnecessary taxes and 2) keeping track of my portion of the pile clearly (in a legally binding way) as it grows over the years. I've heard of people who co-invest $5MM+ of family money through one of the family members who work in a PE. But we do not have such money. What would be the best way for me to co-invest through my sister?

Any advice would be much appreciated!

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Comments (10)

May 3, 2021 - 9:17am

Thank you franco. One potential issue I see with this route is that I'm not an accredited investor (neither my net worth or salary meet the minimum requirement). If we were to create a trust and get it accredited, don't we need a minimum of 5 million in net assets or doesn't each person have to be accredited?

May 3, 2021 - 5:08pm

I see. Sounds like you'll have to come up with a private arrangement.

Keep in mind that for a traditional PE fund you would be making a commitment upfront (your sister will be on the hook for the commitment you make should you "default"). So $100k upfront + $50k p.a. isn't really the way to think about an investment in PE.

  • Associate 2 in PE - LBOs
May 3, 2021 - 2:43pm

Have you even checked docs to see if your sister is allowed to invest on someone else's behalf on the fund? My docs disallow this

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May 3, 2021 - 3:32pm

I mean - the only way I can think of is to gift her 15K each year (at which point on paper it becomes my sister's money) and have her co-invest it (off the paper on my behalf)...But I created this posting to see if anyone knows of a better way.

  • Associate 2 in PE - LBOs
May 3, 2021 - 6:10pm

Not unless you want your sister to lie on her docs? At which point your whole 'legally binding' stuff clearly becomes highly questionable as a tactic

  • Analyst 1 in IB - Gen
May 3, 2021 - 5:37pm

Easiest way is to literally give her money to invest for you, no contracts no nada. "Legally binding" - are you planning on suing your sister if things go sideways? 

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