An investment fund is a pool of other people's money under professional management: passive investors hand capital to a team that selects assets and earns a fee plus a share of profits for doing so. A holding company or a family SPV holds the owner's own money, so regulators largely leave it alone; a fund runs outside capital, and that is what triggers licensing, offering rules, mandatory service providers and supervision.
The decision to run a fund turns on six questions: when a fund makes economic sense, which vehicles exist, where the industry concentrates, who is allowed to manage, how money moves in and out, and what has to be ready for launch. Individual regimes, licences and documents are covered in the linked articles.
Concept
The dividing line runs along the source of capital and discretion. While there is one investor, or each participant decides deal by deal, a holding company, a syndicate or an SPV is enough: platforms such as AngelList and Sydecar assemble such SPVs serially within days. A fund appears when the strategy repeats, capital rotates between deals and the manager decides at its own discretion. The label carries no weight: a club or syndicate with passive investors, a common portfolio and manager discretion qualifies as a fund with all the consequences.
The economics of the classic private fund is "2 and 20": a management fee of roughly 1.5–2 percent per year on commitments or NAV pays for the team and infrastructure, and carried interest of roughly 20 percent of profits above a hurdle rewards performance. The market negotiates around those figures: mega-funds charge lower fees, first-time venture funds sometimes carry more, hedge funds discount fees for longer capital commitments.
Hence the entry threshold. A fee on a portfolio of a few million dollars cannot cover a fund's administrative costs, so a fund usually makes sense from tens of millions in target size, with a repeating strategy and outside investors. For a single deal, a single investor or one's own capital, the fund wrapper adds cost and regulation without benefit.
Vehicles: LP, LLC, VCC and Others
The global standard for closed-ended funds is the limited partnership: the general partner manages and bears liability, limited partners stay passive and enjoy limited liability. The Cayman ELP and the Delaware LP cover most of global private equity and venture capital; the fund's core contract is the LPA, and its protective mechanics are covered separately. Small US venture funds often use an LLC, and serial syndicates use series structures.
Corporate vehicles with variable capital — the Singapore VCC, the Irish ICAV, the Luxembourg SICAV — issue and redeem shares at NAV without corporate capital-reduction procedures and run umbrellas with segregated sub-funds. The unit trust, a contractual form without legal personality, is familiar in the UK, Japan and offshore markets. Luxembourg's SIF and RAIF are regulatory regimes applied to a SICAV or an SCSp partnership.
An open-ended fund lives on NAV: subscriptions and redemptions on scheduled dealing dates against a liquid portfolio. A closed-ended fund collects commitments for 8–12 years, draws money in tranches through capital calls and returns it as investments exit. Hedge funds are open-ended; private equity, venture and infrastructure are closed-ended; real assets and private credit increasingly use evergreen structures with limited exit windows.
A comparison of the main vehicles by purpose:
| Vehicle | Domicile | Type | Typical use |
|---|---|---|---|
| ELP | Cayman | closed-ended | PE, venture, private credit |
| LP | Delaware | closed-ended | US PE/VC |
| LLC / Series LLC | US | flexible | small venture, syndicates |
| VCC | Singapore | open- or closed-ended, umbrella | hedge, PE/VC, family office |
| ICAV | Ireland | open- or closed-ended | QIAIF, hedge, real assets |
| SICAV / SCSp (SIF, RAIF) | Luxembourg | open- or closed-ended | institutional AIFs |
| Unit trust | UK, Japan, offshore | open-ended | retail and private schemes |
The choice of vehicle almost always follows the liquidity model: closed-ended strategies go into partnerships, liquid trading strategies into variable-capital corporate forms.
Dominant Jurisdictions
The industry concentrates in half a dozen domiciles, chosen by investor base: US LPs are used to Delaware and Cayman, European institutions expect Luxembourg or Ireland, Asian capital is comfortable in Singapore. A detailed comparison of criteria sits in the review of fund domicile jurisdictions.
Cayman Islands
The default of the global offshore industry: hedge funds and global PE/VC outside the US. Open-ended mutual funds register with CIMA — a standard registered fund under s.4(3) of the Mutual Funds Act requires a minimum initial investment of $100,000 (CI$80,000), while a fund with 15 or fewer investors, a majority of whom can remove the operator, uses the lighter s.4(4) route. Closed-ended funds fall under the Private Funds Act: an application to CIMA within 21 days of accepting capital commitments, with capital contributions allowed only after registration.
Delaware
The onshore standard for funds with US LPs. A Delaware LP is never registered as an investment product: the perimeter is set by the Investment Company Act exclusions — s.3(c)(1) with up to 100 beneficial owners and s.3(c)(7) for qualified purchasers; a qualifying venture capital fund of up to $12m (the threshold after the SEC's 2024 inflation adjustment) may admit up to 250 investors. Offerings are made privately under Regulation D. Partnership tax transparency and predictable Delaware law keep the structure fast and cheap; the regulatory weight sits on the manager.
Luxembourg
The hub for EU institutional money: the full AIFMD passport allows offering the fund to professional investors across the Union. A SIF goes through CSSF approval; a RAIF launches without regulator approval — supervision runs through the mandatory external authorised AIFM, and the offering document carries a cover-page notice on the absence of direct supervision. Investors must be well-informed: institutional, professional, or committing from €100,000 with a written status confirmation. 16 April 2026 is the AIFMD II transposition deadline: by that date Member States must have brought the rules on delegation, liquidity management tools and loan-originating funds into national law; whether a given jurisdiction has actually done so is checked separately.
Ireland
Ireland competes with Luxembourg for the same money, offering an English-speaking infrastructure and the ICAV, a form built specifically for funds: a flexible instrument of incorporation, sub-funds, and a check-the-box classification convenient for US investors. The QIAIF — the regime for qualifying investors with a €100,000 minimum subscription — is authorised by the Central Bank of Ireland on the next business day after a complete filing, provided the AIFM, depositary and other parties are pre-approved.
Singapore
The VCC is the local umbrella form with variable capital and statutory segregation of sub-funds; self-management is prohibited, and a VCC must appoint a Permissible Fund Manager — a licensed or registered fund management company. Manager statuses are covered in the articles on the Singapore fund management licence and the VCFM regime. The tax appeal rests on the s13O/13U exemptions: for family-office tracks MAS requires at least S$20m AUM under 13O and S$50m under 13U (conditions as of August 2026), plus the annual MAS declarations. The classic setup without a VCC — a unit trust or an LP — works too: see the review of the Singapore private fund.
BVI
The BVI covers the entry segment with two light-touch regimes, and their limits are what separate them.
| Parameter | Incubator fund | Approved fund |
|---|---|---|
| Investors | up to 20 | up to 20 |
| Minimum ticket | from $20,000 | no minimum |
| Assets | up to $20m | up to $100m |
An incubator fund starts business on the second business day after filing, its term runs two years extendable by up to 12 months, then conversion into a full fund or wind-down; the approved fund follows the same logic for club money. Above that size, private and professional funds under SIBA take over.
Second League
Jersey and Guernsey serve UK and European private equity: since August 2025 the Jersey Private Fund carries no numerical investor caps — the requirements come down to professional investor status or a commitment from £250,000 — and is authorised by the JFSC within 24 hours; Guernsey runs the symmetrical Private Investment Fund. ADGM and DIFC offer English common law and proximity to Gulf capital. Hong Kong promotes the corporate OFC with fund tax concessions. Malta is an inexpensive entry into the EU with a full passport, paid for by more cautious treatment from banks and institutional LPs.
The Manager and Its Licence
Registering a fund and being allowed to manage it are two separate permissions. The management company obtains its status where the team physically works: in the US the choice runs between RIA registration and ERA exemptions, in Singapore a CMS licence or the lighter VCFM, in the EU AIFM authorisation or a sub-threshold regime, in Cayman registration under SIBA. Where to place the manager when the fund and the team sit in different countries is the subject of a separate comparison of manager jurisdictions.
Substance determines the quality of the structure: decisions must actually be taken where the manager is declared, otherwise the fund risks tax residence in the country where the team lives. The GP and the management company are different roles: the GP bears partnership liability and receives carry, the management company holds the licence and receives the fee; they are often placed in different jurisdictions.
Mechanics: Subscriptions, NAV, Carry
Closed-Ended Funds: Commitments and Distributions
In a closed-ended fund money moves on the deal schedule: commitments, then capital calls against specific investments, then exits and distributions through a waterfall with hurdle, catch-up and clawback. LP protections — key persons, GP removal, conflict procedures — are fixed in advance in the LPA. Cash gaps between calls are bridged by a subscription line — credit secured on unfunded commitments, covered in the fund finance article.
Open-Ended Funds: NAV and Liquidity
An open-ended fund lives on NAV: the administrator strikes net asset value on each dealing date, and subscriptions and redemptions execute at that price. Liquidity is managed with a standard toolkit: a lock-up bars exit for the first months or years, a gate caps the share of assets redeemable per period, a side pocket isolates illiquid positions in a separate class until realisation.
Early Exit: The Secondaries Market
Early exit from a closed-ended fund happens on the secondaries market: selling the LP interest, usually at a discount to NAV, or joining a continuation vehicle into which the GP moves mature assets; mechanics and pricing are covered in the review of fund secondaries.
Service Providers
The minimum counterparty set of a private fund: administrator, custodian, auditor, bank. The administrator keeps the register, strikes NAV and runs investor AML/KYC; in venture it is increasingly replaced by software — Carta and its peers combine administration with cap table accounting. The custodian or depositary holds the assets: in the EU a depositary is mandatory under AIFMD, and digital assets need a qualified custodian the auditor is willing to accept. The auditor signs the annual accounts — offshore regulators require an audit for almost all registered funds. A prime broker is needed only by trading hedge funds: leverage, short positions, execution. Add counsel in two jurisdictions — the fund's domicile and the manager's country.
Launch: Stages and Timelines
A launch is a multi-month project; the critical path almost always runs through the manager's licence and bank onboarding.
- Strategy and key investors. Target size, average ticket, investor countries; soft commitments from two or three key LPs before spending on counsel.
- Economics. The term sheet: fee, carry, hurdle, term, liquidity — fixed before documents are drafted.
- Jurisdiction and licence. The fund domicile and the manager's status are chosen together; licensing is the longest stage: from a couple of weeks (an ERA filing) to six months and more (a CMS licence, AIFM authorisation).
- Documents. The LPA or constitution, PPM, subscription documents, the management agreement, side letters for key investors.
- Providers and bank. Administrator, auditor, custodian, accounts; bank onboarding runs in parallel and is often the slowest item.
- Fund registration. CIMA, the Central Bank of Ireland, the JFSC or ACRA/MAS: from 24 hours (QIAIF, JPF) to several weeks; a Cayman private fund must register before taking money.
- First closing. Investor KYC, acceptance of commitments, the first capital call; later investors join through an equalisation mechanism.
The bottom line on timing: an offshore closed-ended fund with the licence already in place comes together in two to four months; licensing the manager adds one to two quarters.
Popular, Ends Badly
A self-managed fund without a licence. Fund registration does not substitute for manager status: a VCC requires a Permissible Fund Manager, a Cayman manager registers under SIBA, a US adviser registers as an RIA or reports as an ERA. Managing other people's money for compensation without status is unlicensed activity: fines, forced shutdown, personal liability of directors.
A "fund" for a single investor. The entire infrastructure — administrator, audit, registration — is paid for a pooling function that is absent. A managed account or an SPV delivers the same result cheaper and without regulatory status. A fund-of-one makes sense in a narrow case: an institution demands a segregated structure with an independent manager — then it is a deliberate decision with a budget.
A crypto fund without qualified custody. An exchange wallet does not count as a custodian: the auditor will decline to confirm the existence of assets, the administrator will refuse to strike NAV, the bank will not open an account. Custody of digital assets and the choice of a domicile for them are covered in crypto jurisdictions.
Retail money in a private fund. A private fund exists inside exemptions for accredited, professional and qualified investors; a single retail subscriber breaks the exemption in their country and drags in prospectus and product registration requirements. Retail access to private markets is built through separately registered wrappers — Masterworks with registered offerings, the European ELTIF, US interval funds — and that is a different, expensive infrastructure.
Risks
Most failures happen at the seams: the fund is registered while the marketing is illegal; the manager is licensed while the substance is empty; the portfolio is sound while one problematic LP costs the structure its bank.
Q/A
At what size does a fund make economic sense?
A reference point: from $20–30m in target commitments for venture, and considerably more for strategies with heavy infrastructure — the management fee has to cover the administrator, audit, counsel and the team before carry appears. Below that level, syndicates and SPVs work better, with costs tied to a specific deal.
Can a track record be built on SPVs with the fund raised later?
Yes, that is the standard trajectory: a series of syndicates on AngelList or Sydecar demonstrates returns and discipline, after which first LPs subscribe to a blind pool more readily. The series has to be run carefully — uniform deal allocation rules, reporting, separation of roles — otherwise it grows into a regulated fund without the paperwork.
Cayman or BVI for a first fund?
A BVI incubator is cheaper and starts within two business days, in exchange for limits: 20 investors, tickets from $20,000, assets up to $20m and conversion after two years. Cayman costs more, yet the form is familiar to any institutional LP and carries no size cap. The practical rule: friends-and-family money and the first $10–20m — BVI; institutional money — Cayman from the start.
A Cayman fund — can its interests be offered to EU investors?
Only through national private placement regimes (NPPR) country by country, or through an EU AIFM with a passport. Reverse solicitation works narrowly: the investor must initiate contact independently, documentably and unprompted. Systematic fundraising in the EU without notifications is a direct AIFMD breach.
A VCC in Singapore or a RAIF in Luxembourg?
The investor base decides. European institutions often require an AIFMD structure — a RAIF with an authorised AIFM and a depositary. Asian LPs and family offices work comfortably with a VCC, which costs less to run and opens the s13O/13U exemptions. When both groups matter, a master-feeder is built: each group enters through its familiar wrapper.
Does every fund need a prime broker?
No. A prime broker serves trading strategies: leverage, short positions, derivatives, exchange access. A venture or private equity fund needs a bank, an administrator and a custodian matched to its asset type; a prime broker in such strategies adds cost without function.