Launching a private investment fund is a complex, multi-disciplinary undertaking that extends far beyond portfolio construction. In Salus GRC’s recent Navigator webinar, Strategies for an Effective Fund Launch, panelists Meir Lax, Counsel, Arnold & Porter, and E.J. Verrico, COO, CFO, and CCO of Elmind Capital, shared candid perspectives on what it truly takes to bring a fund to market successfully.
Drawing on real-world experience across legal, operational, compliance, and fundraising disciplines, the discussion highlighted both strategic considerations and common pitfalls that new and emerging managers should anticipate.
Clarifying the “Why” Behind a Fund Launch
A successful fund launch begins with a clearly articulated purpose. Managers must be able to explain why the fund should exist and why now. According to the panel, this raison d’être often stems from a combination of identifying a market gap, possessing differentiated expertise, and maintaining a strong philosophical commitment to a particular investment strategy.
Equally important is authenticity. Investors are increasingly skeptical of generic narratives and expect managers to demonstrate a credible, repeatable edge. Alignment between the founder’s background, the strategy design, and investor interests is critical. Such clarity is essential to differentiate a manager in the current fundraising environment.
Readiness to Enter a Highly Regulated Industry
There are several threshold issues a firm needs to consider when launching a new fund, including the overall impact on the business. Asset management is a heavily regulated industry, and entering it, particularly for first-time advisers, comes with significant compliance obligations.
Managers must carefully assess how a fund launch may impact their registration status. For example, exempt reporting advisers (ERAs) may cross assets-under-management thresholds that require SEC registration, while previously unregistered businesses may inadvertently convert non-securities activities into securities offerings. These transitions can materially change the firm’s regulatory footprint, costs, and operational complexity.
The panel emphasized that firms should not underestimate the importance of having the right legal and compliance infrastructure in place before launching. Attempting to retrofit compliance programs or registration requirements after the fact is costly and disruptive.
Aligning Strategy, Structure, and Investor Expectations
Another recurring theme was alignment — ensuring that the investment strategy, fund structure, liquidity terms, and fee model are consistent with one another. For example, a long-term, illiquid strategy may be poorly served by frequent redemption rights, while mismatched fee structures can undermine investor confidence.
Managers must also consider tax, regulatory, and investor-based implications when selecting structures such as master-feeder vehicles, offshore funds, or parallel funds. Importantly, the panel advised against over-engineering structures at launch. While flexibility to expand later is valuable, unnecessary complexity early on can increase costs and slow fundraising without delivering proportional benefits.
Fundraising in a Challenging Market Environment
Current competition for capital is high. Diligence cycles can last longer, and allocators are more selective, making the current fundraising environment challenging, particularly for new or emerging managers. While institutional allocators continue to deploy capital, they are more selective and increasingly aggressive in negotiating terms. As a result, managers should plan longer fundraising timelines than they might have anticipated historically.
One practical recommendation was to build longer fundraising periods and higher organizational expense caps from the outset. Legal, regulatory, and diligence costs have all increased, and underestimating these expenses can force managers to seek amendments mid-fundraise. This outcome can often create friction with investors.
Managers must also be mindful of securities law restrictions on capital raising. Traditional private offerings under Regulation D Rule 506(b) limit solicitation to investors with whom the manager has a pre-existing substantive relationship. While recent SEC guidance around Rule 506(c) may provide greater flexibility for certain high-minimum offerings, the panel noted that these approaches remain evolving and should be navigated carefully with counsel.
What Investors Care About Most
From an investor’s perspective, diligence extends well beyond performance potential. Core areas of focus include track record integrity, strategy differentiation, risk management, governance, liquidity terms, and operational infrastructure.
Operational robustness is often overlooked by new managers but plays a decisive role in investor confidence. Investors want assurance that reporting is accurate, timely, and scalable; that key-person risk is mitigated; and that compliance and controls are embedded into daily operations. Overly complex fee arrangements or unusual governance provisions can also raise red flags, particularly for institutional allocators accustomed to market-standard terms.
The panel’s advice was clear: differentiate through investment insight and execution, not through exotic legal terms.
Building the Business for the Long Term
Launching a fund is not just about launching a product; it is about building a business. Managers should develop a realistic business plan and operating budget, including a clear understanding of break-even AUM, expense allocation between the management company and the fund, and long-term growth expectations.
Personnel decisions are especially critical in the early stages. Early hires shape firm culture and operational resilience, and poorly documented employment arrangements can lead to costly disputes down the line. Thoughtful planning around compensation, equity vesting, confidentiality, and restrictive covenants can significantly reduce future risk.
Technology and outsourcing also play an increasingly central role. Fund administrators, compliance consultants, IT providers, and other service vendors can provide scale and efficiency, but only if they are carefully diligenced and aligned with the firm’s growth trajectory. Managers should resist the temptation to adopt every available system at launch and instead prioritize solutions that meet immediate needs while allowing for future expansion.
Compliance and Cybersecurity: Be Proactive, Not Reactive
The webinar concluded with a strong emphasis on proactive compliance and cybersecurity practices. Waiting until a regulatory exam or cyber incident occurs is far too late. Regulators and investors alike expect firms to demonstrate that they have implemented, not just documented, robust policies and procedures.
Compliance manuals must be tailored to the business and actively followed. Annual reviews, training, marketing oversight, and personal trading monitoring should be demonstrated in practice, not merely aspirational on paper. Similarly, cybersecurity preparedness can significantly influence how regulators and investors assess a firm’s response if an incident occurs.
As one panelist noted, the difference between a manageable problem and a reputational crisis often lies in the firm’s ability to show it took reasonable, proactive steps to protect investors and data.
Final Thoughts
An effective fund launch requires far more than investment acumen. It demands strategic clarity, regulatory foresight, operational discipline, and a long-term mindset. By planning early, engaging experienced advisers, and resisting unnecessary complexity, managers can position themselves not just to launch a fund, but to build a durable investment business capable of scaling over time.