Considering starting your own investment fund?
Here’s what you need to know before starting your own fund. Including what it takes to get started, actually be successful at it, and what some of the other profitable and more efficient alternatives may be.
Starting up new investment firms and funds seems to be growing in popularity. Many investors who have done well in investing for themselves during the past few bull run years are finding the idea of launching their own firm and fund attractive. These include doctors, lawyers, nurses, and ex Wall Street bankers.
This seems especially true for those that have been in the single family real estate space, or may have participated in a multifamily apartment deal or two.
Moving up and wanting to maximize your potential is great.
If this move can truly elevate your life, contribution, and is the best way you can have a positive impact to help others, then go for it.
Just know what’s involved, and what some similarly profitable alternatives are that may deliver on more of the things you really want most, like time.
Still, there is a ton of capital out there right now. Billions of dollars are looking for new homes in alternative assets and investments.
What It Takes
Lots Of Legal Fees
Expect to spend some big mula in legal fees to start up your own fund, register it, and complete necessary filing.
This is on top of all the normal corporate and business set up items, and essentials like a strong marketing budget.
Today investors want a highly transparent experience. They want real time dashboards and access.
It is also going to take a variety of software and tech tools to effectively and efficiently operate a fund, manage assets well, and provide great customer service.
You cannot do this alone. You are going to need a team. You need industry specific experts, technical team members, marketers, advisors, legal and more.
Today, most of them will work remotely. This is highly efficient and cost effective. Though it can be a challenge and a big learning curve at first, if you are not used to working and managing people in this environment.
Lots Of Work On All Sides
As a fund manager you are no longer just looking for and managing deals for yourself.
This comes with a lot of responsibility, compliance requirements, and work. You are now dealing with managing the business, as well as finding and executing on deals, and then on top of that, raising money from clients and managing them as well. It is going to at least triple your workload and time commitment you had previously. If you cannot commit to that, you may want to rethink it before diving in.
In order to deploy capital and get the good deals on assets you are going to have to have a resume and track record. The best and biggest sellers won’t and can’t just sell to anyone. Even despite you having raised a few million dollars.
You are going to have to start small, prove a couple of funds over time, and keep on graduating up.
Still, you have to have access to consistent deal flow. Otherwise you won’t be able to deploy and deliver on what you promised.
Lots Of Capital
You not only need money for acquisitions, but also for covering improvements, overhead, regulatory filings, cash flow shortfalls, cashing out investors and more. If you are just starting out, you can’t afford to mess up.
If you aren’t confident that you are firing on all cylinders on all fronts, or that you really want to commit to that level of work, then there are alternatives.
One is to simply sell your deals to a fund. If you are great at finding and negotiating great deals then why not pass on all the hard work of operating to someone else?
Another is to create a feeder fund and to benefit from arbitrage. If you are great with investors, and raising capital, then why not then invest in another fund which can do all the work of sourcing and managing investments and delivering strong returns. You make your spread.
These alternatives enable you to level up, while focusing on your strengths, and still carefully protecting your time so that you enjoy a great life, as well as scaling up your finances.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund