What Do You Need to Start an Investment Fund?
Are you a high net worth individual or family looking to start your own investment fund? With over $23 trillion in investable assets held by high net worth households as of 2022,16 more and more affluent investors are exploring the benefits of launching their own funds.
While starting an investment fund can be personally and financially rewarding, it requires proper guidance, support, and a robust business plan. As an ultra-high-net-worth individual with at least $30 million in investable assets, 16 you have unique needs and considerations when it comes to preserving and growing your wealth through an investment vehicle.
In this comprehensive guide, we'll walk you through the key steps and strategies for starting an investment fund as a high net worth individual or family in 2024. From developing an effective investment strategy to raising capital from your network, we'll cover everything you need to know to navigate the launch process successfully.
Develop an Effective Investment Strategy
The first step in starting an investment fund is to devise an investment strategy that positions your fund to become a leader in its market and ensures long-term sustainability. In today's increasingly competitive environment, a well-defined strategy allows you to determine the markets you want to participate in and the tools you'll need to execute your plan.4
As a high net worth individual, you have the flexibility to invest in a wide range of asset classes, from traditional stocks and bonds to alternative investments like private equity, real estate, and even luxury goods. In fact, 69% of ultra-high-net-worth investors (those with assets worth $5 million or more) currently hold alternative investments in their portfolios. 2
When developing your investment strategy, consider the following factors:
- Sector and geographic focus: Will you specialize in a particular industry or region, or take a more diversified approach? Focusing on sectors or geographies where you have expertise can give you a competitive edge.
- Risk tolerance: As an affluent investor, you may have a higher risk tolerance than the average investor. However, it's important to align your strategy with your overall wealth management goals and time horizon.
- Unique value proposition: What sets your fund apart from others in the market? Whether it's a proprietary investment process, access to exclusive deals, or a socially responsible investing approach, having a clear differentiator can help attract investors.
Create a Detailed Business Plan
Once you have a solid investment strategy in place, the next step is to create a comprehensive business plan for your fund. A well-crafted business plan not only helps you establish specific guidelines and objectives but also serves as a roadmap for your fund's growth and development. 4
Key components of an effective business plan include:
- Executive summary: A high-level overview of your fund's mission, investment strategy, target market, and competitive advantages.
- Market analysis: An in-depth look at the current state of the investment landscape, including trends, opportunities, and potential challenges.
- Financial projections: Detailed forecasts of your fund's expected returns, expenses, and cash flows over the next 3-5 years. As a high net worth individual, you may have significant personal assets to invest in your fund, but it's crucial to have a clear picture of your fund's financial health and sustainability.
- Marketing and investor relations plan: Strategies for attracting and retaining investors, including your network of ultra-high-net-worth individuals, family offices, and institutional investors. With 81% of institutional investors planning to increase their alternative investment holdings by 2025, 2 having a targeted marketing plan can help you tap into this growing pool of capital.
Invest Your Own Capital and Develop a Pitchbook
As a high net worth individual starting an investment fund, it's essential to have "skin in the game" by investing a significant portion of your own capital. Potential investors, especially those in your ultra-high-net-worth network, will want to see that you have faith in your own strategy and are aligned with their interests. 4
In addition to investing your own money, you'll need to develop a compelling pitchbook to present to potential investors. Your pitchbook should highlight your:
- Background and experience as an investor
- Investment process and strategy
- Track record of success (if applicable)
- Expected returns and risk profile
- Unique value proposition and competitive advantages
Navigate the Legal and Regulatory Landscape
Starting an investment fund involves navigating a complex web of legal and regulatory requirements, particularly when it comes to raising capital from high net worth individuals and families. It's crucial to work with experienced attorneys and advisors who specialize in the investment fund space to ensure compliance and protect your interests.4
Some key legal and regulatory considerations include:
- Fund structure: Will you launch a hedge fund, private equity fund, or other alternative investment vehicle? The structure of your fund will impact your regulatory obligations, tax treatment, and investor base.
- Securities laws: Depending on your fund's structure and the types of investors you plan to target, you may need to register with the Securities and Exchange Commission (SEC) or qualify for an exemption under Regulation D or other rules. 16
- Investor accreditation: When raising capital from individual investors, you'll need to ensure they meet the SEC's definition of an "accredited investor," which generally requires a net worth of at least $1 million (excluding primary residence) or an annual income of at least $200,000 ($300,000 for married couples).16
- Disclosure and reporting: As a fund manager, you'll be required to provide investors with detailed disclosure documents, such as a private placement memorandum (PPM), and ongoing reporting on the fund's performance and operations.
Build a Strong Management Team
Assembling a talented and experienced management team is critical to the success and growth of your investment fund. As a high net worth individual, you may have the financial resources to attract top talent, but it's important to build a team that complements your own skills and expertise.4
Key roles to consider include:
- Chief Investment Officer (CIO): Responsible for overseeing the fund's investment strategy and portfolio management.
- Chief Financial Officer (CFO): Handles the fund's financial management, reporting, and compliance.
- Chief Operating Officer (COO): Manages the day-to-day operations of the fund, including investor relations and administrative functions.
- Investment Analysts: Conduct research and due diligence on potential investments, monitor portfolio holdings, and provide recommendations to the investment committee.
In addition to your internal team, you'll also need to build relationships with external service providers, such as prime brokers, administrators, auditors, and legal counsel. These professionals can provide valuable support and expertise as you navigate the complexities of running an investment fund.4
Raise Capital from Your High Net Worth Network
With a solid investment strategy, business plan, and management team in place, you're ready to start raising capital for your fund. As a high net worth individual, you have a unique advantage in tapping into your existing network of affluent investors, family offices, and institutional allocators.4
Some effective strategies for raising capital from your high net worth network include:
- Personal outreach: Leverage your personal relationships and connections to introduce your fund to potential investors. High net worth individuals often prefer to invest with people they know and trust, so building strong relationships is key. 16
- Family office events: Attend conferences and events geared towards family offices and ultra-high-net-worth investors. These gatherings provide valuable opportunities to network with potential investors and showcase your fund's unique value proposition.
- Thought leadership: Position yourself as a thought leader in your investment niche by publishing articles, whitepapers, and other content that demonstrates your expertise and insights. This can help attract the attention of high net worth investors who are looking for innovative and knowledgeable fund managers.
- Referrals: Encourage satisfied investors to refer their high net worth peers to your fund. Word-of-mouth referrals can be a powerful tool for attracting new capital, particularly among ultra-high-net-worth individuals who value the opinions of their trusted advisors and peers.16
Provide an Exceptional Investor Experience
As a high net worth individual starting an investment fund, it's essential to provide your investors with an exceptional experience that goes beyond just financial returns. Ultra-high-net-worth investors expect a high level of service, transparency, and communication from their fund managers.16
Some ways to deliver a best-in-class investor experience include:
- Customized reporting: Provide investors with detailed, customized reporting on the fund's performance, holdings, and risk exposures. High net worth individuals often have complex financial situations and appreciate tailored insights and analysis. 16
- Regular communication: Keep investors informed about the fund's activities and outlook through regular newsletters, webinars, and in-person meetings. Be proactive in addressing any concerns or questions that arise.
- Exclusive events: Host exclusive events for your high net worth investors, such as educational seminars, networking dinners, or even philanthropic initiatives. These events can help build stronger relationships and foster a sense of community among your investor base.
- Personalized service: Offer a dedicated investor relations team or relationship manager to provide personalized support and guidance to your high net worth clients. This can include assistance with tax planning, estate planning, and other wealth management needs. 16
Continuously Adapt and Evolve
The investment landscape is constantly changing, and as a high net worth individual running an investment fund, it's crucial to stay ahead of the curve. Continuously monitor market trends, regulatory developments, and investor preferences to ensure your fund remains competitive and relevant.4
Some strategies for staying adaptable and innovative include:
- Embrace technology: Leverage cutting-edge technology, such as artificial intelligence and machine learning, to enhance your investment process and improve operational efficiency. Many high net worth investors are increasingly interested in funds that are harnessing the power of technology to drive returns. 17
- Expand your offerings: Consider adding new investment strategies, asset classes, or even impact investing options to your fund lineup. As more ultra-high-net-worth individuals seek to align their investments with their values, offering socially responsible or ESG-focused funds can help differentiate your firm.2
- Foster a culture of learning: Encourage your team to continuously learn and grow by providing access to training, conferences, and other educational resources. A knowledgeable and adaptable team is essential for navigating the ever-changing investment landscape.
- Collaborate with experts: Build relationships with leading academics, researchers, and industry professionals to stay informed about the latest developments and best practices in the investment world. These collaborations can also lead to new investment ideas and opportunities for your fund.4
Conclusion
Starting an investment fund as a high net worth individual or family can be a rewarding and lucrative endeavor, but it requires careful planning, execution, and ongoing adaptation. By developing a strong investment strategy, building a talented team, and providing an exceptional investor experience, you can position your fund for long-term success in the competitive world of alternative investments.
As you embark on this journey, remember to leverage your unique advantages as an ultra-high-net-worth investor, including your extensive network, financial resources, and ability to invest in innovative and differentiated strategies. With the right approach and mindset, you can build a thriving investment fund that not only grows your own wealth but also creates value for your high net worth investors and the broader market.
References
[17] Passive Income: What It Is and Ideas for 2024 - Investopedia. https://www.investopedia.com/terms/p/passiveincome.asp
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
What Do You Need to Start an Investment Fund?
Are you a high net worth individual or family looking to start your own investment fund? With over $23 trillion in investable assets held by high net worth households as of 2022,16 more and more affluent investors are exploring the benefits of launching their own funds.
While starting an investment fund can be personally and financially rewarding, it requires proper guidance, support, and a robust business plan. As an ultra-high-net-worth individual with at least $30 million in investable assets, 16 you have unique needs and considerations when it comes to preserving and growing your wealth through an investment vehicle.
In this comprehensive guide, we'll walk you through the key steps and strategies for starting an investment fund as a high net worth individual or family in 2024. From developing an effective investment strategy to raising capital from your network, we'll cover everything you need to know to navigate the launch process successfully.
Develop an Effective Investment Strategy
The first step in starting an investment fund is to devise an investment strategy that positions your fund to become a leader in its market and ensures long-term sustainability. In today's increasingly competitive environment, a well-defined strategy allows you to determine the markets you want to participate in and the tools you'll need to execute your plan.4
As a high net worth individual, you have the flexibility to invest in a wide range of asset classes, from traditional stocks and bonds to alternative investments like private equity, real estate, and even luxury goods. In fact, 69% of ultra-high-net-worth investors (those with assets worth $5 million or more) currently hold alternative investments in their portfolios. 2
When developing your investment strategy, consider the following factors:
- Sector and geographic focus: Will you specialize in a particular industry or region, or take a more diversified approach? Focusing on sectors or geographies where you have expertise can give you a competitive edge.
- Risk tolerance: As an affluent investor, you may have a higher risk tolerance than the average investor. However, it's important to align your strategy with your overall wealth management goals and time horizon.
- Unique value proposition: What sets your fund apart from others in the market? Whether it's a proprietary investment process, access to exclusive deals, or a socially responsible investing approach, having a clear differentiator can help attract investors.
Create a Detailed Business Plan
Once you have a solid investment strategy in place, the next step is to create a comprehensive business plan for your fund. A well-crafted business plan not only helps you establish specific guidelines and objectives but also serves as a roadmap for your fund's growth and development. 4
Key components of an effective business plan include:
- Executive summary: A high-level overview of your fund's mission, investment strategy, target market, and competitive advantages.
- Market analysis: An in-depth look at the current state of the investment landscape, including trends, opportunities, and potential challenges.
- Financial projections: Detailed forecasts of your fund's expected returns, expenses, and cash flows over the next 3-5 years. As a high net worth individual, you may have significant personal assets to invest in your fund, but it's crucial to have a clear picture of your fund's financial health and sustainability.
- Marketing and investor relations plan: Strategies for attracting and retaining investors, including your network of ultra-high-net-worth individuals, family offices, and institutional investors. With 81% of institutional investors planning to increase their alternative investment holdings by 2025, 2 having a targeted marketing plan can help you tap into this growing pool of capital.
Invest Your Own Capital and Develop a Pitchbook
As a high net worth individual starting an investment fund, it's essential to have "skin in the game" by investing a significant portion of your own capital. Potential investors, especially those in your ultra-high-net-worth network, will want to see that you have faith in your own strategy and are aligned with their interests. 4
In addition to investing your own money, you'll need to develop a compelling pitchbook to present to potential investors. Your pitchbook should highlight your:
- Background and experience as an investor
- Investment process and strategy
- Track record of success (if applicable)
- Expected returns and risk profile
- Unique value proposition and competitive advantages
Navigate the Legal and Regulatory Landscape
Starting an investment fund involves navigating a complex web of legal and regulatory requirements, particularly when it comes to raising capital from high net worth individuals and families. It's crucial to work with experienced attorneys and advisors who specialize in the investment fund space to ensure compliance and protect your interests.4
Some key legal and regulatory considerations include:
- Fund structure: Will you launch a hedge fund, private equity fund, or other alternative investment vehicle? The structure of your fund will impact your regulatory obligations, tax treatment, and investor base.
- Securities laws: Depending on your fund's structure and the types of investors you plan to target, you may need to register with the Securities and Exchange Commission (SEC) or qualify for an exemption under Regulation D or other rules. 16
- Investor accreditation: When raising capital from individual investors, you'll need to ensure they meet the SEC's definition of an "accredited investor," which generally requires a net worth of at least $1 million (excluding primary residence) or an annual income of at least $200,000 ($300,000 for married couples).16
- Disclosure and reporting: As a fund manager, you'll be required to provide investors with detailed disclosure documents, such as a private placement memorandum (PPM), and ongoing reporting on the fund's performance and operations.
Build a Strong Management Team
Assembling a talented and experienced management team is critical to the success and growth of your investment fund. As a high net worth individual, you may have the financial resources to attract top talent, but it's important to build a team that complements your own skills and expertise.4
Key roles to consider include:
- Chief Investment Officer (CIO): Responsible for overseeing the fund's investment strategy and portfolio management.
- Chief Financial Officer (CFO): Handles the fund's financial management, reporting, and compliance.
- Chief Operating Officer (COO): Manages the day-to-day operations of the fund, including investor relations and administrative functions.
- Investment Analysts: Conduct research and due diligence on potential investments, monitor portfolio holdings, and provide recommendations to the investment committee.
In addition to your internal team, you'll also need to build relationships with external service providers, such as prime brokers, administrators, auditors, and legal counsel. These professionals can provide valuable support and expertise as you navigate the complexities of running an investment fund.4
Raise Capital from Your High Net Worth Network
With a solid investment strategy, business plan, and management team in place, you're ready to start raising capital for your fund. As a high net worth individual, you have a unique advantage in tapping into your existing network of affluent investors, family offices, and institutional allocators.4
Some effective strategies for raising capital from your high net worth network include:
- Personal outreach: Leverage your personal relationships and connections to introduce your fund to potential investors. High net worth individuals often prefer to invest with people they know and trust, so building strong relationships is key. 16
- Family office events: Attend conferences and events geared towards family offices and ultra-high-net-worth investors. These gatherings provide valuable opportunities to network with potential investors and showcase your fund's unique value proposition.
- Thought leadership: Position yourself as a thought leader in your investment niche by publishing articles, whitepapers, and other content that demonstrates your expertise and insights. This can help attract the attention of high net worth investors who are looking for innovative and knowledgeable fund managers.
- Referrals: Encourage satisfied investors to refer their high net worth peers to your fund. Word-of-mouth referrals can be a powerful tool for attracting new capital, particularly among ultra-high-net-worth individuals who value the opinions of their trusted advisors and peers.16
Provide an Exceptional Investor Experience
As a high net worth individual starting an investment fund, it's essential to provide your investors with an exceptional experience that goes beyond just financial returns. Ultra-high-net-worth investors expect a high level of service, transparency, and communication from their fund managers.16
Some ways to deliver a best-in-class investor experience include:
- Customized reporting: Provide investors with detailed, customized reporting on the fund's performance, holdings, and risk exposures. High net worth individuals often have complex financial situations and appreciate tailored insights and analysis. 16
- Regular communication: Keep investors informed about the fund's activities and outlook through regular newsletters, webinars, and in-person meetings. Be proactive in addressing any concerns or questions that arise.
- Exclusive events: Host exclusive events for your high net worth investors, such as educational seminars, networking dinners, or even philanthropic initiatives. These events can help build stronger relationships and foster a sense of community among your investor base.
- Personalized service: Offer a dedicated investor relations team or relationship manager to provide personalized support and guidance to your high net worth clients. This can include assistance with tax planning, estate planning, and other wealth management needs. 16
Continuously Adapt and Evolve
The investment landscape is constantly changing, and as a high net worth individual running an investment fund, it's crucial to stay ahead of the curve. Continuously monitor market trends, regulatory developments, and investor preferences to ensure your fund remains competitive and relevant.4
Some strategies for staying adaptable and innovative include:
- Embrace technology: Leverage cutting-edge technology, such as artificial intelligence and machine learning, to enhance your investment process and improve operational efficiency. Many high net worth investors are increasingly interested in funds that are harnessing the power of technology to drive returns. 17
- Expand your offerings: Consider adding new investment strategies, asset classes, or even impact investing options to your fund lineup. As more ultra-high-net-worth individuals seek to align their investments with their values, offering socially responsible or ESG-focused funds can help differentiate your firm.2
- Foster a culture of learning: Encourage your team to continuously learn and grow by providing access to training, conferences, and other educational resources. A knowledgeable and adaptable team is essential for navigating the ever-changing investment landscape.
- Collaborate with experts: Build relationships with leading academics, researchers, and industry professionals to stay informed about the latest developments and best practices in the investment world. These collaborations can also lead to new investment ideas and opportunities for your fund.4
Conclusion
Starting an investment fund as a high net worth individual or family can be a rewarding and lucrative endeavor, but it requires careful planning, execution, and ongoing adaptation. By developing a strong investment strategy, building a talented team, and providing an exceptional investor experience, you can position your fund for long-term success in the competitive world of alternative investments.
As you embark on this journey, remember to leverage your unique advantages as an ultra-high-net-worth investor, including your extensive network, financial resources, and ability to invest in innovative and differentiated strategies. With the right approach and mindset, you can build a thriving investment fund that not only grows your own wealth but also creates value for your high net worth investors and the broader market.
References
[17] Passive Income: What It Is and Ideas for 2024 - Investopedia. https://www.investopedia.com/terms/p/passiveincome.asp
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
