How do institutions think about fund size and concentration limits?
Short answer
Institutions usually want to own a modest slice of any one fund and avoid putting too much into a single manager. So fund size matters on both sides. A fund that is too small cannot absorb their check. A fund with no track record has not earned a large one. I tell managers to build size in steps and build the back office first.
Most institutions set their own limits on how much of one fund they will hold and how much any single manager can be in their portfolio. I cannot give you one number, because each policy is different. What I can tell you is how the pattern shows up in the rooms I sit in.
Why a big check does not fit a small fund
A large institution writes large checks. If your fund is small, their minimum check could make them too big a share of it. That is a problem on their side, so they pass. The same thinking shows up in how allocators spread money. A family office may see 50, 200 or 500 deals a year. They cannot put 30% into any one of them. They allocate 1% or even .1%.
Ryan explains how allocators see a river of deal flow, and how institutions are moving toward direct investments.
Summary and key takeaways from this video
Build your size in steps
Your size also has to match your history. I see people who have never raised capital say they want a billion dollars for one project. I do not think that gets done. Michael Jordan could not move straight from basketball into pro baseball, and you cannot jump from your first million to your first billion.
For a first fund, I would start with five or ten million dollars. Then go to 20 or 30 million, then 50 to 70 million, and up from there. If you can open at 250 million from a standstill, that is a strong start. In my experience most people cannot, and many who try struggle.
I explain why stair stepping your fund sizes works better than opening one giant first fund.
Investors like momentum. They would rather see you fill a smaller fund, then another, and compare how each vintage performed. A fund that stays open for years trying to hit a big target tends to stall.
The platform has to fit the check
Size is only half of it. John told me that institutions came knocking and wanted to invest big money, but he had no audit, no third party advisers and no fund administrator. He then paid for audited financials, worked with large law firms on his documents and hired a major fund administrator. He also said institutions send you through third party due diligence, and you must pass it.
"No institution will invest with you without an institutional platform, and you have to be able to pass there."
John shares what he had to build before institutions would write him large checks.
Summary and key takeaways from this video
So the practical view is simple. Match your fund size to checks you can actually absorb. Show a record at each size. Then invest in the audit, administration and legal work that lets a big allocator say yes.
Concentration terms, side letters and ownership caps are topics many managers talk through with securities counsel before promising anything to an institution.
What I have said on this at our events
One thing to add is who tends to write the biggest checks. In my experience many families would rather back a direct deal than a fund, but the big multifamily offices and institutions often do not have time to diligence every deal, so they tend to prefer funds and write bigger checks to them. That is another reason size and structure matter. I also tell managers to prepare for diligence about a half level above where they are today. If you raise at family office level, get ready for institutions before they show up.
"Most family offices would rather put money in a direct deal than a fund, but big multifamily offices and big institutions don't have time to do diligence on every deal. They typically do prefer the funds and will write bigger checks to funds."
"Speed is really important, and also make sure that you're preparing for due diligence that is a good half level above where you are now. If you are typically raising capital at $100,000 per check and you want to go to the family office level, or you want to go from family offices to institutions, then be ready for institutions when you're at family offices."
On the record
- Ryan said a family office may see 50, 200 or 500 deals a year and allocate only 1% or .1% to them, not 30%.
- I suggest a first fund of five or ten million dollars, then 20 to 30 million, then 50 to 70 million.
- John paid for quarterly audited financials, and his administrator now produces NAV on a monthly basis.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Capital Raising Frequently Asked Questions Webinar, Capital Raising Mistakes to Avoid | Ep 16, How to Build a $1B Real Estate Platform | John Lettera & Richard C. Wilson. 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 concentration and ownership caps, side letter terms and fund offering documents. Do not use AI to write your own legal agreements.
What to do next
- Write down the fund size you can credibly raise with your current track record.
- Pick your next step up in size, such as doubling the last raise.
- Ask each institution about its typical check size and its limit as a share of a fund.
- Price out an audit, a fund administrator and securities counsel.
- Plan a second fund after the first one fills.
Follow-up questions
Do institutions invest directly instead of through funds?
Some do. Ryan said the trend is moving toward direct investments, though it is mostly smaller or more innovative institutions asking for them. Many managers talk to a securities attorney about how to structure that.
Should my first fund be large to impress institutions?
I do not think so. I suggest starting with five or ten million dollars and stepping up. A filled small fund is stronger than a large fund that stays open.
What does an institution need to see before investing?
John said you need an institutional platform and must pass third party due diligence. That included audited financials, legal documents prepared with counsel and a fund administrator.
Related questions
- How do I prepare a DDQ for institutional investors?Build one master DDQ before any institution asks for it.
- How do insurance companies invest in private credit funds?Insurance companies usually invest in private credit funds as limited partners, inside an allocation set by their own investment team.
- Why Do Institutional Investors Reject Emerging Managers?In my experience, many rejections trace back to a missing institutional platform.
- What are emerging manager programs and how do I qualify?Emerging manager programs are allocations some institutions set aside for newer fund managers.
Work through it with the dilution calculator. See all institutional investors resources.