Capital Raising for Private Equity Funds
Private equity is built on the commitment of long-term capital from institutional and high-net-worth investors. Raising that capital requires a structured process: building the fund vehicle, preparing offering documents, marketing to prospective limited partners, and running a disciplined close cycle. For general partners, the raise is as much about credibility and governance as it is about performance projections.
Quick take: private equity funds raise capital through closed-end partnerships where investors commit capital up front, drawn over time to fund acquisitions. The process hinges on a compelling strategy, a seasoned team, audited track record, and investor trust in reporting and governance standards.
Contents
- Fund structure and vehicle setup
- Target investor base
- Offering documents and disclosures
- Fundraising cycle and timelines
- Placement agents and distribution channels
- Compliance and eligibility
- What GPs must prepare
- FAQ
Fund Structure and Vehicle Setup
Most private equity funds are structured as limited partnerships. The general partner (GP) manages the fund and makes investment decisions; the limited partners (LPs) provide capital and receive distributions. Vehicles are often domiciled in Delaware, Luxembourg, Cayman, or similar jurisdictions depending on the investor mix. Parallel funds or feeder vehicles may be created to accommodate investors with different tax or regulatory requirements.
Target Investor Base
- Pension funds:
Seeking long-term illiquid investments with stable return expectations.
- Endowments and foundations:
Comfortable with 10+ year commitments and focused on diversification.
- Family offices and HNW:
Looking for access to private markets and opportunistic strategies.
- Sovereign wealth funds:
Anchors that often negotiate side letters and co-investment rights.
Offering Documents and Disclosures
Capital raising relies on professional-grade documentation. Core components include:
- Private Placement Memorandum (PPM) outlining strategy, risks, and track record.
- Limited Partnership Agreement (LPA) setting out terms, fees, and governance.
- Subscription Agreement capturing investor commitments and regulatory representations.
- Due diligence materials: data room, audited financials, compliance policies, and ESG disclosures.
Fundraising Cycle and Timelines
A typical fundraising process runs 12–18 months. It starts with anchor discussions, followed by a first close where early investors commit, then rolling closings until the final close. During this period, the GP may begin investing, with capital called from committed LPs as deals are executed. The life of the fund is usually 10 years, with a 5-year investment period followed by harvest and distribution phases.
Placement Agents and Distribution Channels
Many GPs engage placement agents to access global LP networks. These agents run targeted campaigns, arrange roadshows, and coordinate due diligence. Digital platforms and co-investment syndicates are increasingly common, but traditional LP-GP relationships remain the backbone of commitments.
Compliance and Eligibility
Private equity fundraising is restricted to accredited and qualified investors. Funds must comply with securities exemptions such as Regulation D in the US or AIFMD in Europe. Marketing materials must avoid retail solicitation. KYC, AML, and sanctions screening are mandatory for all LP commitments.
What GPs Must Prepare
- Clear and defendable investment strategy with sector or regional edge.
- Audited track record of prior funds or deals.
- Team bios highlighting experience across deal sourcing, execution, and exits.
- Governance framework: advisory board, conflicts policy, valuation methodology.
- Investor reporting templates and ESG disclosures aligned with LP expectations.
Financely advises private equity managers on fundraising strategy, structuring fund vehicles, preparing offering documents, and engaging with LPs. Whether you are a first-time fund or an established GP, we build the framework that investors expect.
FAQ
How long does it take to raise a PE fund?
Most funds require 12–18 months to reach final close. Timing depends on team track record, market conditions, and anchor investor commitments.
What fees do GPs charge?
The industry standard is a 2% management fee during the investment period and 20% carried interest on profits above a hurdle. Variations exist based on strategy and LP negotiations.
Can first-time funds succeed?
Yes, but only with a differentiated strategy, strong personal track records, and early anchor support. Placement agents can help, but credibility is built on execution history and governance.
This article is for professional readers. Private equity fundraising is subject to securities regulations. Always consult legal and tax advisers before marketing or subscribing to a private equity vehicle.