Fund formation and first-time fund managers
How much does it cost to set up a private fund?
Short answer
It depends on the structure, the number of investors and the law firm, so I won't give you one number. Legal work is often a major part of the setup cost, and ongoing costs come after it. Get a written quote from securities counsel before you commit. Then compare that cost to how long it may take to raise real capital.
I can't give you a single number, and I'd be wary of anyone who does. The cost changes with the type of fund, how many investors you expect, which states are involved and which law firm you hire. A flat price quoted without those details is a guess. The right move is to ask securities counsel for a written quote based on your actual plan. I'm not a lawyer, and this is not legal advice.
What actually drives the bill
Most of the cost sits in a few places. Here is how I would think about the list before calling a law firm.
- Legal work with securities counsel on the fund and offering documents
- Setting up the entities, which many sponsors talk through with counsel
- Regulatory filings and notices, which counsel can walk you through
- Fund administration, audit and tax preparation once you are running
- Marketing, travel and events to find the investors
Notice that formation is only the first bill. Plan for the ongoing costs too, because they continue whether or not you have raised the money yet.
Spend on credibility before you spend on structure
When I talk to family offices, they want managers who are consistent, reliable and professional. They also tend to prefer a credible, well-known team. In my experience, adding a recognized name to the team can help in getting meetings. That is a different kind of spending than legal fees, and it may help your raise more in some cases.
This clip covers what family offices want from private equity fund managers, including team credibility and capital preservation.
Summary and key takeaways from this video
I also warn people against treating the fund as the answer to everything. Some groups push the start a fund idea so hard that it sounds like the holy grail. A lot of investors want direct deals, and many will not go into a fund unless they know you very well. So think about whether a fund is the first thing you need to build.
"What I encourage is to have a strong, very crystal clear position, but not a rigid deal structure."
One option I mention is offering co-investment rights, or letting people invest in one, two or three deals before they decide on the fund. After three deals, they either like and trust you or they don't. That approach can also let you test demand before you pay for a full fund structure. Your counsel can tell you what is allowed in your situation.
Here I explain why even the largest firms offer co-investments and why a take it or leave it fund pitch often falls flat.
Summary and key takeaways from this video
Match the cost to how long the raise could take
The money you spend on setup has to be weighed against the time it takes to fill the fund. Family offices vary a lot. Some may resist a private equity fund until you are in fund two, three or four. For a hedge fund, some want to see $30 million to $50 million in assets first, and sometimes more. Many also do not want to be more than 10 or 15% of your investor base.
This clip walks through five types of fund investors and how each one tends to approach a new manager.
Summary and key takeaways from this video
That means you may carry fund costs for a while before the large checks arrive. Build that runway into your budget. Then get quotes from more than one securities attorney and compare what each one includes.
More from my talks
One more thing about timing. Investors like to see momentum, and I have heard them say they would rather watch you fill a smaller fund than see another fund, then another fund, then another fund. That matters for your budget. A modest first fund that closes and performs gives you a track record to point to, while a large structure that sits half empty can leave you carrying costs with little to show. Size the setup to what you can realistically raise.
"People like to see momentum, they'd rather see you fill a smaller fund than another fund, than another fund, than another fund, and see how those different ventures performed over time."
Facts and figures
- Some family offices resist investing in a private equity fund until the manager is in fund two, three or four.
- For hedge funds, some family offices want $30 million to $50 million in assets before investing as a normal LP, and sometimes $100 million or more.
- Even the largest private equity firms offer co-investments and direct investments because they raise more capital that way.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: 5 Types of Hedge Fund Investors, Strategic Choke Points: Billionaire Deal Flow & Capital Raising | Richard C. Wilson, What are Family Offices Looking for in Private Equity Fund Managers. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around fund entity structure, offering documents and regulatory filings. Do not use AI to write your own legal agreements.
Your next steps
- 1List the fund type, target investor types and states you plan to raise in.
- 2Ask two or three securities attorneys for written fee quotes, including ongoing costs.
- 3Budget for administration, audit and tax work beyond formation.
- 4Decide whether deal by deal or co-investment could test demand first.
- 5Estimate how long your raise could take and fund that runway.
People also ask
Do I need a fund to raise money from family offices?
Not always. Many investors want direct deals or co-investments, and some will not enter a fund until they know the manager well. Ask counsel how to structure those options.
Do setup costs end once the fund is formed?
No. Administration, audit, tax preparation and investor reporting continue after formation. Family offices also complain about poor reporting, so plan to do it well.
Related questions
- What is the difference between a first close and a final close?The first close is the date your fund accepts its first group of investors and can start operating.
- How long does fund formation take from start to launch?There is no single number, because fund formation runs on two clocks.
- What is a rolling fund and how does it work?A rolling fund is a structure where investors subscribe in recurring periods, usually each quarter, instead of everyone committing at one final close.
- How do I write a fund term sheet for LPs?Write the term sheet as a short, plain summary of the economics and rules of your fund.
Work through it with the data room checklist. See all fund formation and first-time fund managers resources.