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What are the Best Tips for Private Equity Fundraising?

Geri Terzo
Geri Terzo

A significant portion of global wealth is managed by private equity firms. These money management professionals are responsible for uncovering investment opportunities and following through with purchasing an entire business or a portion of a company. To do this successfully, private equity fundraising must occur and be done efficiently and strategically. This means that private equity professionals must have the right people running the firm, good relationships with the investment community and, when possible, a history of successful investing.

Private equity fundraising is about earning large financial commitments from investors. Investors decide which investment to support based on many criteria, including the caliber of the private equity investment staff. If the fund managers have deep relationships with investors already, this helps because investors are not only making decisions based on the firm and investment strategy but also the professionals who are running the fund.

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Businessman giving a thumbs-up

First and foremost, private equity fundraising is about building relationships and highlighting the investment talent at a firm. If, for some reason, a private equity firm is pursuing the creation of a portfolio that is outside the realm of the firm's internal expertise, then it should be made clear that an outside consultant is advising on the investment decisions. This will provide some assurance to investors and is an integral part of private equity fundraising.

Private equity is considered an alternative investment, which means that it is riskier then most traditional asset classes, such as stocks and bonds. As a result, it is necessary in private equity fundraising to determine the pool of potential investors. Some pension funds, for instance, adhere to a strict and conservative investment style, so marketing to these institutions might prove futile. A private college endowment, on the other hand, might have a significant portion of assets earmarked specifically for private equity investing, so it would be worthwhile to designate which investors to target for a particular fund.

Engaging an attorney to be part of the private equity process is also recommended. Raising money for a new private equity fund can be a lengthy process that unfolds over the course of many months, beginning with the planning stages. Often, large sums of money are committed by investors. Find an attorney who specializes in private equity and who can support the legal and tax framework of the fundraising process. Investors could come from just about any region, so the legal professional should be familiar with the different legal requirements tied to different countries and economies.

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