Fund formation and first-time fund managers
How much should a GP commit to their own fund?
Short answer
There is no single number that fits every fund. Many managers commit a small percentage of the fund, and what matters most is that the amount is meaningful to you personally. Larger funds usually mean a smaller percentage. Early on, start with a smaller fund so your own check is realistic. Investors read your commitment as a signal, so decide it early, and many managers talk to securities counsel about the terms.
There is no fixed percentage, but there is a range
I do not have one number that fits every fund. In larger private equity style funds, a commitment in the low single digits as a percent of the fund is commonly cited. Smaller emerging managers often commit whatever is meaningful for them, and that can be a higher percent of a much smaller fund.
Investors look at the amount relative to your own net worth. A small check that stings you tells them more than a large check that you will not miss. This is general information and not legal advice. Many managers talk to securities counsel about how to describe their commitment in the fund documents.
Why a smaller first fund makes your own check realistic
The most common mistake I see is a first-time manager trying to raise a very large first fund. That makes any personal commitment look tiny or impossible to fund. I would rather see you size the fund to what you can actually back.
"You should probably start with a five or ten million dollar fund and then go to a 20 or 30 million dollar fund."
This clip walks through why I tell new managers to step up fund sizes instead of starting big.
Summary and key takeaways from this video
A five or ten million dollar fund lets you put in a real share of your own money. As you move to the next vintage, your commitment can grow with it. Investors like to see momentum and a track record across several funds.
What family offices ask about your GP and your LP base
When family offices consider a young manager, they often ask for more than other investors do. Some want a piece of your GP if they come in early and become a big part of your LP base. They also tend to cap how much of your fund they will hold.
"They might not want to be more than 10 or 15% of your total LP base."
Here I describe the five types of hedge fund investors and how family offices behave differently from the rest.
Summary and key takeaways from this video
This is where your own commitment helps. If you have real money in the fund, the investor sees that you carry the same risk. It also leaves room for you to say no to one investor taking too large a slice.
Keep your own money inside the fund, not beside it
A GP who commits to the fund but also runs side deals can raise questions for investors. On one of our monthly hot seat webinars, a fund manager said they wanted to avoid any direct competition between the fund and a side deal. I agreed that clean lines matter.
In this webinar clip, we talk about how managers set rules for deals done inside the fund versus outside it.
Summary and key takeaways from this video
Some managers set their own rules, such as capping how much of any deal can be done outside the fund. Many managers talk to an attorney about how to put these rules in writing. Then your own commitment and your investors' money sit on the same terms.
From my books and event talks
When I raised my own fund, I put just under $1 million of my own cash into it alongside my investors. That made me an LP in my own fund, and I think investors respond to that. You are not asking them to take a risk you will not take yourself. I would rather you commit an amount that is real to you and say so plainly in the pitch, then let the investor decide whether it feels like enough skin in the game.
"I have just under the $1 million mark of my cash in the fund alongside my investors. Basically, that makes me an LP in my own fund."
From the source
- Family offices may not want to be more than 10 or 15% of a manager's total LP base.
- A suggested path for a first-time manager is a 5 to 10 million dollar fund, then 20 to 30 million, then 50 to 70 million.
- Some managers cap how much of any deal can be done outside the fund, with examples of 20%, 30% or 50%.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: 5 Types of Hedge Fund Investors, Capital Raising Mistakes to Avoid | Ep 16, Family Office Hot Seat: Real Capital Raising Advice for Founders & Investors | Monthly Webinar. 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 GP commitment disclosure, fund offering documents and side deal rules. Do not use AI to write your own legal agreements.
Your next steps
- 1Decide the fund size first, then pick a GP commitment you can fund without strain.
- 2Consider talking to securities counsel about how your commitment is documented.
- 3Think through clear rules for any deals done outside the fund.
- 4Plan how your commitment grows as you step up to the next fund.
- 5Be ready to explain your number when a family office asks.
Follow-up questions
Is there a minimum GP commitment?
Funds are set up differently, so there is no single answer. Some investors expect a commitment, and many managers talk to securities counsel about their own situation.
Why do family offices ask for a piece of the GP?
In my experience, some family offices want a piece of your GP if they come in early and become a big part of your LP base. It is a negotiating point, so decide in advance how you will respond.
Should my first fund be large to attract bigger investors?
I would not start large. I suggest starting with a five or ten million dollar fund and stepping up from there.
Related questions
- How much capital do I need for a first close?There is no single number.
- How do I choose an auditor for my fund?Choose an auditor that already audits funds like yours, is independent from your team and your administrator, and can finish on a timeline your investors accept.
- What are clawback provisions in fund agreements?A clawback provision in a fund agreement is generally meant to bring back money that was already paid out, under conditions the agreement sets.
- 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 ready to raise checklist. See all fund formation and first-time fund managers resources.