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The fund formation checklist

43 things a new fund usually has to get done, from the first draft of the strategy to the first annual audit, in the order they tend to come. Each stage’s page explains the why.

1. Strategy and track record

Often six months or more before formation begins, and for a spin-out, the time it takes to leave cleanly. Read the stage

  • Write the strategy in two sentencesWhat you invest in, at what size, and why you win the deals.
  • Set the target fund size and portfolio planNumber of investments, size of each, holding period.
  • Build the track record scheduleEvery deal with dates, amounts, returns and each person’s role.
  • Check what you may show from a former firmEmployment and partnership agreements; agree attribution in writing where you can.
  • Collect referencesFormer colleagues, company management, co-investors who will take a call.
  • Model the management company budgetCosts until first close and after, at the low and the target fund size.
  • Decide the GP commitmentHow much the team puts in, and how it will be funded.

2. Structure and documents

Commonly two to four months for the documents, often run alongside early fundraising. Read the stage

  • Hire fund counselAgree the scope and the fee, including what is deferred to first close.
  • Choose the structureFund, general partner, management company, and any parallel or feeder funds.
  • Settle the key termsSize and hard cap, fees, carry and waterfall, GP commitment, term, key person.
  • Form the entitiesFile formation documents; get tax ID numbers for each entity.
  • Draft the LPA, PPM and subscription documentsCounsel drafts; the team checks every fact about itself.
  • Decide the offering exemptionRule 506(b) or 506(c), and 3(c)(1) or 3(c)(7).
  • Settle the adviser statusRegistered, state-registered or exempt reporting, and what each needs filed.
  • Plan the tax structure with your tax adviserBlockers or feeders for tax-exempt and non-US investors, the carry, the management company.

3. Service providers

Counsel first, the rest chosen before the first close. Read the stage

  • Fund counsel engagedUsually the first hire.
  • Tax adviser engagedBrought in during structuring.
  • Auditor appointedInvestors ask who it is before they commit.
  • Fund administration decidedAn outside administrator or a documented in-house process.
  • Bank accounts openedFor the fund, the general partner and the management company.
  • Compliance programme in placeAn in-house or outsourced CCO, manual, code of ethics.
  • Insurance quotedCommonly management liability and errors and omissions cover.

4. Fundraising

Commonly twelve to twenty-four months from first meetings to final close, and often longer. Read the stage

  • Build the investor listStart with people who know the team; then programmes that back new managers.
  • Prepare the deck, track record and case studiesEvery figure checkable against your records.
  • Open a data roomDocuments, policies, provider details, team references.
  • Answer a standard DDQ in advanceMany institutional investors start from the ILPA DDQ.
  • Confirm marketing rules with counselWhat the offering exemption and adviser rules let you say.
  • Decide on an anchor or seederAnd what you will give for it.
  • Set a target first close dateA date gives investors a reason to finish.

5. First close

The last few weeks before the date are the busiest; later investors join at subsequent closes, usually within twelve to eighteen months. Read the stage

  • Collect signed subscription documentsWith each investor’s eligibility answers complete.
  • Complete investor AML and KYC checksBefore money is accepted.
  • Sign side letters and run the MFN processTrack every promise made to every investor.
  • Sign the LPA and hold the closingCounsel runs the closing checklist.
  • File Form D and state noticesForm D is due within 15 days after the first sale.
  • Issue the first capital callNotices, wire instructions confirmed by phone, receipts recorded.
  • Set up each investor’s capital accountCommitments, contributions and fees from day one.

6. Running the fund

Ongoing, for the life of the fund, often ten years or more. Read the stage

  • Write a valuation policyHow and when each kind of asset is valued.
  • Set the reporting calendarQuarterly statements and reports; the annual audit; K-1s.
  • Agree the audit timetableWho supplies what, and by when, after year end.
  • Agree the tax timetableReturns, extensions and the K-1 date investors are told.
  • Run the compliance calendarAnnual review, Form ADV update, code of ethics certifications.
  • Hold advisory committee meetingsAs the LPA provides, with minutes.
  • Keep a record of every side letter obligationAnd check them before each report and notice.

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This guide explains how fund launches commonly work. It is not legal, tax or investment advice: rules differ by fund, investor and place, and change. Speak to your own lawyers and tax advisers before you act.