Private Funds

A Private Fund is one of the most traditional—and historically exclusive—ways to invest in private markets. These include well-known categories such as private equity funds, venture capital funds, private credit funds, and private real estate funds.

Private funds are typically offered only to accredited investors or sometimes qualified purchasers (higher wealth thresholds). They are often long-term, highly illiquid, and professionally managed by experienced firms.

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Private funds come in several flavors:

1. Private Equity Funds

Invest in private companies with the goal of:

• improving operations

• expanding the business

• eventually selling at a profit
  Private equity often involves multi-year turnarounds and strategic growth initiatives.

2. Venture Capital Funds

Invest in early-stage companies, usually in technology or innovation-driven fields.
High risk, high potential reward.

3. Private Credit Funds

Lend money directly to private businesses.
Investors receive interest income, similar to BDCs but with different structure and liquidity terms.

4. Private Real Estate Funds

Invest in commercial real estate—apartments, industrial buildings, office towers, hotels, etc.
These funds can focus on:

• value-add strategies,

• development,

• income,

• or opportunistic real estate deals.

5. Specialty Funds

Focused on very specific themes such as:

• infrastructure

• energy

• farmland

• timber

• litigation finance

• secondaries (buying stakes in other private funds)

Private funds cover almost every corner of the private economy.

Private Funds may have a “commitment and capital call” structure:

1. Investors commit a certain amount (e.g., $100,000 or $1 million).

2. The fund “calls” portions of that commitment over time to make investments.

3. The fund holds the investments for several years while the manager works to grow their value.

4. Profits are returned when investments are sold or mature.

The lifecycle of a private fund commonly lasts 7–12 years.

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Why Investors Use Private Funds

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1. Access to High-Potential Returns

Historically, private equity and venture capital have produced strong long-term returns, although with higher risks.

2. Exposure to Private Companies

Most companies in America are private. Private funds give exposure to this huge part of the economy.

3. Professional Expertise

These funds are often run by teams with deep operational, financial, and industry experience.

4. Long-Term Focus

Because investors commit capital for years, managers can execute long-term strategies without worrying about short-term market pressure.

Considerations and Risks

1. Illiquidity

Once invested, capital is typically locked up for many years.
No redemptions, no early exits.

2. High Minimums

Minimums can range from $100,000 to several million dollars, depending on the fund.

3. Fees

Private funds often use a “2 and 20” structure:

• approx. 2% annual management fee

• 20% of the profits (called carried interest)

4. Capital Calls

Investors must be prepared to provide capital when called — even during market downturns.

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Private funds are typically used by:

• high-net-worth individuals

• family offices

• institutions

• experienced investors seeking high long-term growth

• investors who don’t need liquidity

They remain a “core” part of many sophisticated portfolios.