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You’ve done it!
You’ve started your fund!
And now you quickly realize that managing investments and deciding what to invest in is a lot of work for one person.
You realize that you need others to help you and make sure that you are making good, financial decisions,
Not emotional ones…
This is where an Investment Committee comes into the picture.
This committee is here to help you manage your investments properly and know what is actually a good deal.
It gives you more sets of eyes to spot something you may have not seen yourself.
But what else do they do?
Investment Committee Basics
If you’re going to run a successful fund you are goin got need an Investment Committee.
Most funds have an Investment Committee that consists of about 6 people.
The purpose of the committee is to make sure that you don’t invest in bad deals.
Typically it is good practice that 5 of these 6 people must agree with the investment before you can actually move forward with it.
So where do they fit into your fund?
Fund Basics
I’ve talked about this before but just to reiterate,
Funds are made up of two main parts:
The General Partnership and the Limited Partnership.
Investors put money into the Limited Partnership and the Fund Manager invests that money through the General Partnership entity.
The General Partner would include in the fund documents a portion talking about the Investment Committee.
This committee is there to protect the investors and give them a sense of security.
It creates trust.
And not only does it create trust, but it also helps relieve stress on your end as a fund manager.
You know that you will have a handful of other people who can stop you from making a bad decision.
Expertise
Another thing that is super important is that your Investment Committee should be made up of experts.
So don’t go throw your random friend in there.
These people need to understand fund documents and how they work,
More specifically your fund documents and rules.
They will keep you safe from going back on your word.
You also want them to be experts in what your fund chooses to invest in.
You wouldn’t want someone with a vast knowledge of stocks telling what is a good multifamily property to buy.
Whether you are a debt fund, hedge fund, private equity fund, or real estate fund, make sure you choose people who know that specifically.
Raising Capital
Having a good Investment Committee will help you raise capital so much easier than if you went in alone.
Sophisticated investors want to know their money will be managed safely and smartly.
When you can pitch your fund to investors and include a list of names with experience that will build rapport and trust.
Having a good Investment Committee will help you close more deals and raise more money. It builds trust!
Conclusion
If you want to be taken seriously it is important to have a good Investment Committee.
They will not only help you with investors but they will provide you peace of mind.
What are some others things you think are important to include for rapport and trust?
Let me know below.
Take Care,
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